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**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSIONWashington, D.C. 20549**

 

**Form 10-Q**

 
| **x** | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT of 1934** |
|-------|------------|--------------------------------------------------------------------------------------------------------|

 

**Forthe quarterly period ended September 30, 2008**

 
| **o** | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT of 1934** |
|-------|------------|---------------------------------------------------------------------------------------------------------|

 

**Commission File Number 000-30833**

 

**BRUKERCORPORATION**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                                                    | ** ** | **04-3110160**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification No.) |

 

**40 Manning Road, Billerica, MA 01821**(Address ofprincipal executive offices) (Zip Code)**

Registrant’s telephone number, including areacode:**(978) 663-3660**

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  Yes x     No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer or a smaller reporting company. Seethe definitions of “accelerated filer, large accelerated filer, smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 
|   | Large accelerated  filer o | Accelerated filer x     |
|--------|---------------------------------|------------------------------|
|   |                            |                         |
|   | Non-accelerated  filer o   | Smaller reporting  company o |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes o     No x

 

As ofNovember 6, 2008, there were 164,066,289 shares of the Registrant’s commonstock outstanding.

 

 

 

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**BRUKERCORPORATION**

 

**QuarterlyReport on Form 10-Q**

**Forthe Quarter Ended September 30, 2008**

 

**Index**

 
| ** **       | ** **                                                                                                                       | **Page** |
|------------------|----------------------------------------------------------------------------------------------------------------------------------|----------|
| **Part I**  | **FINANCIAL  INFORMATION**                                                                                                       | 1        |
| Item 1:          | Unaudited Condensed Consolidated  Financial Statements                                                                           | 1        |
|             | Unaudited Condensed Consolidated Balance Sheets as of  September 30, 2008 and December 31, 2007                        | 1        |
|             | Unaudited Condensed Consolidated Statements of  Operations for the three and nine months ended September 30, 2008 and  2007 | 2        |
|             | Unaudited Condensed Consolidated Statements of Cash  Flows for the nine months ended September 30, 2008 and 2007            | 3        |
|             | Notes to Unaudited Condensed Consolidated Financial  Statements                                                                  | 4        |
| Item 2:          | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                      | 17       |
| Item 3:          | Quantitative  and Qualitative Disclosures About Market Risk                                                                      | 35       |
| Item 4:          | Controls and Procedures                                                                                                          | 36       |
| **Part II** | **OTHER  INFORMATION**                                                                                                           | 37       |
| Item 1:          | Legal Proceedings                                                                                                                | 37       |
| Item 1A:         | Risk Factors                                                                                                                     | 37       |
| Item 2:          | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                     | 38       |
| Item 3:          | Defaults Upon  Senior Securities                                                                                                 | 38       |
| Item 4:          | Submission of  Matters to a Vote of Security Holders                                                                             | 38       |
| Item 5:          | Other Information                                                                                                                | 38       |
| Item 6:          | Exhibits                                                                                                                         | 38       |
|             | Signatures                                                                                                                       | 39       |

 

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**Part I             ****FINANCIAL INFORMATION**

 

**ITEM 1.          UNAUDITEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

**BRUKERCORPORATION**

**UNAUDITED CONDENSED CONSOLIDATEDBALANCE SHEETS**

**(inthousands, except share data)**

** **
| ** **                                                                                                                                                                                                     | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                     | ** ** | **2008**               | ** ** | **2007**              | ** ** |
| **ASSETS**                                                                                                                                                                                                     |       |                   |       |                  |       |
| Current assets:                                                                                                                                                                                                |       |                   |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                                                     |       | $                      | 84,381     |                  | $          | 332,368 |   |
| Short term  investments and restricted cash                                                                                                                                                                    |       | 2,986                  |       | 12,186                |       |
| Accounts  receivable, net                                                                                                                                                                                      |       | 156,068                |       | 185,217               |       |
| Inventories                                                                                                                                                                                                    |       | 456,814                |       | 447,688               |       |
| Other current  assets                                                                                                                                                                                          |       | 71,473                 |       | 57,238                |       |
|                                                                                                                                                                                                           |       |                   |       |                  |       |
| Total current  assets                                                                                                                                                                                          |       | 771,722                |       | 1,034,697             |       |
| Property, plant  and equipment, net                                                                                                                                                                            |       | 219,317                |       | 207,588               |       |
| Intangibles and  other assets                                                                                                                                                                                  |       | 86,471                 |       | 69,346                |       |
|                                                                                                                                                                                                           |       |                   |       |                  |       |   |   |
| Total assets                                                                                                                                                                                                   |       | $                      | 1,077,510  |                  | $          | 1,311,631 |   |
|                                                                                                                                                                                                           |       |                   |       |                  |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                                                                                                 |       |                   |       |                  |       |
| Current  liabilities:                                                                                                                                                                                          |       |                   |       |                  |       |
| Short-term  borrowings                                                                                                                                                                                         |       | $                      | 44,276     |                  | $          | 35,591 |   |
| Accounts payable                                                                                                                                                                                               |       | 46,528                 |       | 52,293                |       |
| Customer  advances                                                                                                                                                                                             |       | 201,084                |       | 233,466               |       |
| Other current  liabilities                                                                                                                                                                                     |       | 217,465                |       | 239,841               |       |
|                                                                                                                                                                                                           |       |                   |       |                  |       |
| Total current  liabilities                                                                                                                                                                                     |       | 509,353                |       | 561,191               |       |
|                                                                                                                                                                                                           |       |                   |       |                  |       |
| Long-term debt                                                                                                                                                                                                 |       | 169,703                |       | 8,605                 |       |
| Other long-term liabilities                                                                                                                                                                                    |       | 103,274                |       | 105,445               |       |
| Minority  interest in consolidated subsidiaries                                                                                                                                                                |       | 810                    |       | 538                   |       |
| Commitments and  contingencies (Note 16)                                                                                                                                                                       |       |                   |       |                  |       |
|                                                                                                                                                                                                           |       |                   |       |                  |       |
| Shareholders’  Equity:                                                                                                                                                                                    |       |                   |       |                  |       |
| Preferred stock,  $0.01 par value, 5,000,000 shares authorized, none issued or outstanding at  September 30, 2008 or December 31, 2007                                                               |       | —                 |       | —                |       |
| Common stock,  $0.01 par value, 260,000,000 and 200,000,000 shares authorized, 164,076,221  and 163,251,890 shares issued and outstanding at September 30, 2008 and  December 31, 2007, respectively |       | 1,633                  |       | 1,624                 |       |
| Treasury stock,  at cost, 9,869 shares and 0 shares at September 30, 2008 and  December 31, 2007, respectively                                                                                       |       | (115                   | )          | —                |       |
| Other  shareholders’ equity                                                                                                                                                                               |       | 292,852                |       | 634,228               |       |
|                                                                                                                                                                                                           |       |                   |       |                  |       |
| Total  shareholders’ equity                                                                                                                                                                               |       | 294,370                |       | 635,852               |       |
|                                                                                                                                                                                                           |       |                   |       |                  |       |   |   |
| Total  liabilities and shareholders’ equity                                                                                                                                                               |       | $                      | 1,077,510  |                  | $          | 1,311,631 |   |

 

The accompanyingnotes are an integral part of these statements.

 

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**BRUKERCORPORATION**

**UNAUDITED CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(inthousands, except per share data)**

** **
| ** **                                                                             | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                             | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                                             | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| Product revenue                                                                        |       | $                                | 209,936    |                            | $          | 215,838 |   | $ | 695,820 |   | $ | 607,624 |   |
| Service revenue                                                                        |       | 30,638                           |       | 24,848                          |       | 92,328 |   | 77,605 |   |
| Other revenue                                                                          |       | 1,490                            |       | 1,074                           |       | 3,817 |   | 2,409 |   |
| Total revenue                                                                          |       | 242,064                          |       | 241,760                         |       | 791,965 |   | 687,638 |   |
|                                                                                   |       |                             |       |                            |       |   |   |   |   |
| Cost of product  revenue                                                               |       | 113,841                          |       | 115,424                         |       | 380,673 |   | 332,883 |   |
| Cost of service  revenue                                                               |       | 18,153                           |       | 15,228                          |       | 59,455 |   | 49,184 |   |
| Total cost of  revenue                                                                 |       | 131,994                          |       | 130,652                         |       | 440,128 |   | 382,067 |   |
| Gross profit                                                                           |       | 110,070                          |       | 111,108                         |       | 351,837 |   | 305,571 |   |
|                                                                                   |       |                             |       |                            |       |   |   |   |   |
| Operating  expenses:                                                                   |       |                             |       |                            |       |   |   |   |   |
| Sales and  marketing                                                                   |       | 44,173                           |       | 38,327                          |       | 133,717 |   | 110,818 |   |
| General and  administrative                                                            |       | 17,675                           |       | 15,580                          |       | 51,657 |   | 42,435 |   |
| Research and  development                                                              |       | 33,089                           |       | 26,841                          |       | 100,808 |   | 80,462 |   |
| Acquisition-related  charges                                                           |       | —                           |       | 544                             |       | 6,153 |   | 544 |   |
| Total operating  expenses                                                              |       | 94,937                           |       | 81,292                          |       | 292,335 |   | 234,259 |   |
| Operating income                                                                       |       | 15,133                           |       | 29,816                          |       | 59,502 |   | 71,312 |   |
|                                                                                   |       |                             |       |                            |       |   |   |   |   |
| Interest and  other income (expense), net                                              |       | 814                              |       | 1,580                           |       | (7,848 | ) | 4,544 |   |
|                                                                                   |       |                             |       |                            |       |   |   |   |   |
| Income before income  tax provision and minority interest in consolidated subsidiaries |       | 15,947                           |       | 31,396                          |       | 51,654 |   | 75,856 |   |
|                                                                                   |       |                             |       |                            |       |   |   |   |   |
| Income tax  provision (benefit)                                                        |       | (1,966                           | )          | 4,616                           |       | 12,500 |   | 16,923 |   |
|                                                                                   |       |                             |       |                            |       |   |   |   |   |
| Income before  minority interest in consolidated subsidiaries                          |       | 17,913                           |       | 26,780                          |       | 39,154 |   | 58,933 |   |
| Minority  interest in consolidated subsidiaries                                        |       | 73                               |       | 109                             |       | 313 |   | 255 |   |
| Net income                                                                             |       | $                                | 17,840     |                            | $          | 26,671 |   | $ | 38,841 |   | $ | 58,678 |   |
|                                                                                   |       |                             |       |                            |       |   |   |   |   |
| Net income per  common share:                                                          |       |                             |       |                            |       |   |   |   |   |
| Basic                                                                                  |       | $                                | 0.11       |                            | $          | 0.16 |   | $ | 0.24 |   | $ | 0.36 |   |
| Diluted                                                                                |       | $                                | 0.11       |                            | $          | 0.16 |   | $ | 0.23 |   | $ | 0.36 |   |
|                                                                                   |       |                             |       |                            |       |   |   |   |   |
| Weighted average  common shares outstanding:                                           |       |                             |       |                            |       |   |   |   |   |
| Basic                                                                                  |       | 162,847                          |       | 161,922                         |       | 162,531 |   | 161,351 |   |
| Diluted                                                                                |       | 165,918                          |       | 164,224                         |       | 165,606 |   | 164,029 |   |

 

The accompanyingnotes are an integral part of these statements.

 

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**BRUKERCORPORATION**

**UNAUDITED CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(inthousands)**

** **
| ** **                                                                   | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                   | ** ** | **September 30,**          | ** ** |
| ** **                                                                   | ** ** | **2008**                        | ** ** | **2007** | ** ** |
| **Operating  activities:**                                                   |       |                            |       |   |   |
| Net income                                                                   |       | $                               | 38,841     |   | $ | 58,678 |   |
| Adjustments to  reconcile net income to cash flow from operating activities: |       |                            |       |   |   |
| Depreciation and  amortization                                               |       | 22,292                          |       | 22,764 |   |
| Stock-based  compensation                                                    |       | 3,115                           |       | 1,497 |   |
| Other noncash  reconciling items, net                                        |       | (7,295                          | )          | (13,563 | ) |
| Changes in  operating assets and liabilities:                                |       |                            |       |   |   |
| Accounts  receivable                                                         |       | 41,776                          |       | (3,386 | ) |
| Inventories                                                                  |       | (35,591                         | )          | (34,905 | ) |
| Accounts payable                                                             |       | (14,658                         | )          | 6,297 |   |
| Customer  advances                                                           |       | (26,075                         | )          | (13,855 | ) |
| Other changes in  operating assets and liabilities, net                      |       | (3,403                          | )          | 9,354 |   |
| Net cash  provided by operating activities                                   |       | 19,002                          |       | 32,881 |   |
|                                                                         |       |                            |       |   |   |
| **Investing  activities:**                                                   |       |                            |       |   |   |
| Purchases of  property, plant and equipment                                  |       | (39,793                         | )          | (19,878 | ) |
| Acquisitions,  net of cash acquired                                          |       | (4,106                          | )          | (2,855 | ) |
| Payments in  connection with the acquistion of Bruker BioSpin                |       | (6,478                          | )          | — |   |
| Purchase of  short-term investments                                          |       | —                          |       | 2,473 |   |
| Proceeds from  sale of short-term investments                                |       | 9,609                           |       | — |   |
| Changes in  restricted cash                                                  |       | (183                            | )          | (323 | ) |
| Net cash used in  investing activities                                       |       | (40,951                         | )          | (20,583 | ) |
|                                                                         |       |                            |       |   |   |
| **Financing  activities:**                                                   |       |                            |       |   |   |
| Proceeds from  (repayments of) short-term borrowings, net                    |       | 3,794                           |       | (6,052 | ) |
| Proceeds from  (repayments of) long-term debt, net                           |       | 168,931                         |       | (5,638 | ) |
| Payments of  deferred financing costs                                        |       | (2,916                          | )          | — |   |
| Proceeds from  issuance of common stock, net of repurchases                  |       | 3,678                           |       | 18,772 |   |
| Deemed dividend  in connection with the acquistion of Bruker BioSpin         |       | (385,963                        | )          | — |   |
| Cash payments to  shareholders                                               |       | (23,416                         | )          | (42,641 | ) |
| Net cash used in  financing activities                                       |       | (235,892                        | )          | (35,559 | ) |
|                                                                         |       |                            |       |   |   |
| Effect of  exchange rate changes on cash and cash equivalents                |       | 9,854                           |       | 19,743 |   |
| Net change in  cash and cash equivalents                                     |       | (247,987                        | )          | (3,518 | ) |
| Cash and cash  equivalents at beginning of period                            |       | 332,368                         |       | 311,240 |   |
| Cash and cash  equivalents at end of period                                  |       | $                               | 84,381     |   | $ | 307,722 |   |

 

The accompanyingnotes are an integral part of these statements.

 

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**BRUKERCORPORATION**

**NOTES TO UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

 

**1.Description of Business**

 

Bruker Corporation andits wholly-owned subsidiaries (the “Company”) design, manufacture, service andmarket proprietary life science and materials research systems based on itscore technology platforms, including X-ray technologies, magnetic resonancetechnologies, mass spectrometry technologies, and optical emission and infraredand Raman molecular spectroscopy technologies. The Company also sells a broadrange of field analytical systems for chemical, biological, radiological andnuclear detection. The Company maintains major technical and manufacturingcenters in Europe, North America and Japan and sales offices throughout theworld. The Company’s diverse customer base includes pharmaceutical,biotechnology and proteomics companies, academic institutions, advancedmaterials and semiconductor industries and government agencies.

 

The financial statementsrepresent the consolidated accounts of the Company. All significantintercompany accounts and transactions have been eliminated in consolidation.The condensed consolidated financial statements as of and for the three andnine months ended September 30, 2008 and 2007 have been prepared inaccordance with accounting principles generally accepted in the United States (“GAAP”)for interim financial information and pursuant to the rules andregulations of the Securities and Exchange Commission for Quarterly Reports on Form 10-Qand Article 10 of Regulation S-X. Accordingly, the financial informationpresented herein does not include all of the information and footnotes requiredby GAAP for complete financial statements. In the opinion of management, alladjustments, consisting only of normal recurring adjustments, considerednecessary for a fair presentation have been included. The results for interimperiods are not necessarily indicative of the results expected for the fullyear.

 

On February 26,2008, the Company completed the acquisition of all of the Bruker BioSpin Group(“Bruker BioSpin”). Both the Company and Bruker BioSpin were majority owned bysix affiliated stockholders prior to the acquisition. As a result, theacquisition of Bruker BioSpin was considered a combination of companies undercommon control and has been accounted for at historical carrying values at thedate of the acquisition. The unaudited condensed consolidated balance sheets,statements of operations, statements of cash flows and notes to the unauditedcondensed consolidated financial statements for all periods presented hereinhave been restated by combining the historical consolidated financialstatements of the Company and Bruker BioSpin.

 

Following the acquisitionof Bruker BioSpin, management reevaluated the way the Company is managed andthe internal reporting structure and, as a result of that evaluation, reportsits financial results on the basis of the following two reportable segments:

 

·                  *BioScience.* The operations of this segmentinclude the design, manufacture and distribution of advanced instrumentationand automated solutions based on X-ray technology and optical emissionspectroscopy, mass spectrometry technology and infrared and Raman molecularspectroscopy technology. Typical customers of the BioScience segment includepharmaceutical, biotechnology, proteomics and molecular diagnostic companies,academic institutions, government agencies, semiconductor companies, chemical,cement, metals and petroleum companies, raw material manufacturers and food,beverage and agricultural companies.

 

·                  *BioSpin.* The operations of this segmentinclude the design, manufacture and distribution of enabling life science toolsbased on its core technology, magnetic resonance, as well as the manufacturingand development of low temperature superconductor and high temperaturesuperconductor wires for use in advanced magnet technology and energyapplications. Typical customers of the BioSpin segment include pharmaceuticaland biotechnology companies, academic institutions and government agencies.

 

**2. Acquisition of Bruker BioSpin**

 

On February 26,2008, the Company completed the acquisition of all of Bruker BioSpin inaccordance with the terms of various agreements dated as of December 2,2007. Both the Company and Bruker BioSpin were majority owned by six affiliatedstockholders prior to the acquisition. As a result, the acquisition of BrukerBioSpin by the Company was considered a combination of companies under commoncontrol and has been accounted for at 

 

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historical carryingvalues at the date of the acquisition. Historical unaudited condensedconsolidated balance sheets, statements of operations, statements of cash flowsand notes to the unauditedcondensed consolidated financial statements have been restated bycombining the historical consolidated financial statements of BrukerCorporation with those of Bruker BioSpin. In addition, because the transactionis accounted for as a combination of companies under common control, allone-time transaction costs have been expensed as incurred. With the addition ofBruker BioSpin, the Company enhanced its position as a leading supplier forlife science and materials research, its distribution in the Americas, Europeand Asia, and its sales and service infrastructure.

 

Upon the completion ofthis acquisition, the Company paid an aggregate of $914.0 million ofconsideration to the shareholders of Bruker BioSpin, which was financed with57,544,872 shares of unregistered common stock valued at $526.0 million, $351.0million of cash obtained under a new credit facility, and the balance with cashon hand. The value of the shares of common stock in connection with the mergerwas determined using a trailing average of the closing market prices of theCompany’s stock for a period of ten consecutive trading days ending two daysprior to the signing of the various stock purchase agreements.

 

Under the stock purchaseagreements, $98.8 million of the purchase price was paid into escrow accountspending the resolution of indemnification obligations and working capitalobligations of the sellers. The unused portion of the $92.0 million indemnityescrow will be released to the sellers at the later of (1) the 30thday following the receipt by the Company of audited financial statements of theCompany for the fiscal year ended December 31, 2008 or (2) theresolution of any claim for indemnification of which the sellers have receivednotice prior to the conclusion of the 30 day period described in (1) above.The $6.8 million working capital escrow was released to the sellers in May 2008following the receipt by the Company of combined audited financial statementsof Bruker BioSpin for the fiscal year ended December 31, 2007.

 

**3. Other Acquisitions**

 

On August 14, 2008,the Company acquired S.I.S. Surface Imaging Systems GmbH (“S.I.S.”), aprivately-held company located in Herzogenrath, Germany. S.I.S. develops,manufactures and distributes advanced atomic force/scanning probe microscopyfor applications in materials research, including semiconductors, data storage,electronic materials, solar cells, polymers and catalysts. The results of S.I.S.have been included in the BioScience segment from the date of acquisition. Theaggregate purchase price of S.I.S. was $2.8 million, of which $2.1 million waspaid in cash and  $0.7 million was fundedby the issuance of an aggregate of 59,342 restricted unregistered shares of theCompany’s common stock, par value $0.01 per share, to certain of S.I.S.’sshareholders. The Company recorded $2.9 million of goodwill in connection withthe acquisition of S.I.S. and assigned the goodwill to the BioScience segment. Proformafinancial information reflecting the acquisition of S.I.S. has not beenpresented because the impact on revenues, net income and net income per commonshare would not have been material.

 

On January 31, 2008,the Company acquired JUWE Laborgeraete GmbH (“JUWE”), a privately-held companylocated in Viersen, Germany. JUWE develops, manufactures and distributesadvanced combustion analysis systems for various carbon, hydrogen, nitrogen,oxygen and sulfur elemental applications. JUWE’s products are complementary tothe Company’s optical emission spectroscopy products. The results of JUWE havebeen included in the BioScience segment from the date of acquisition. Theaggregate purchase price of JUWE was $2.7 million, of which $1.2 million waspaid in cash, $1.1 million was funded by the issuance of an aggregate of111,000 restricted unregistered shares of the Company’s common stock, par value$0.01 per share, to JUWE’s shareholders and $0.4 million of net liabilitiesassumed by the Company. The Company recorded $2.2 million of goodwill inconnection with the acquisition of JUWE and assigned the goodwill to theBioScience segment. Proforma financial information reflecting the acquisitionof JUWE has not been presented because the impact on revenues, net income andnet income per common share would not have been material.

 

**4. Provision (Benefit) for Income Taxes**

 

The income tax provision(benefit) for the three months ended September 30, 2008 was $(2.0) millioncompared to an income tax provision (benefit) of $4.6 million for the threemonths ended September 30, 2007, representing effective tax rates of(12.3)% and 14.7%, respectively. The income tax provision (benefit) for thenine months ended September 30, 2008 was $12.5 million compared to anincome tax provision (benefit) of $16.9 million for the nine months ended September 30,2007, representing effective tax rates of 24.2% and 22.3%, respectively.

 

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The Company’s effectivetax rate reflects the tax provision (benefit) for non-U.S. entities only, sinceno benefit was recognized for cumulative losses incurred in the U.S. A fullvaluation allowance will be maintained for U.S. net operating losses untilevidence exists that it is more likely than not that the loss carryforwardamounts will be utilized to offset U.S. taxable income. The Company’s tax ratemay change over time as the amount or mix of income and taxes outside the U.S.changes. The effective tax rate is calculated using projected annual pre-taxincome or loss and is affected by research and development tax credits, theexpected level of other tax benefits, the impact of changes to the valuationallowance, and changes in the mix of the Company’s pre-tax income and lossesamong jurisdictions with varying statutory tax rates and credits.

 

During the third quarterof 2008, two German subsidiaries in the BioSpin segment were merged into athird German subsidiary. As a result of the merger, the Company will be able touse certain net operating loss carryforwards that existed in the mergedentities but had previously been fully reserved. The valuation allowancerelated to these net operating loss carryforwards was reversed in the thirdquarter of 2008 and resulted in a tax benefit of approximately $6.5 million.

 

Additionally, the Companyestablished a profit and loss sharing agreement between two of the Germansubsidiaries of Bruker AXS Inc. during the third quarter of 2008. Thisagreement allows the losses of one entity to reduce the taxable income of theother entity. Prior to this agreement being put in place, certain deferred taxassets related to these entities had full valuation allowances. These valuationallowances were reversed during the third quarter of 2008, resulting in a taxbenefit of approximately $1.2 million.

 

The Company received a$0.5 million refund of French taxes on inter-corporate dividends during thethird quarter of 2008 which was recorded as a tax benefit. This refund relatedto withholding taxes paid in connection with dividends paid by a Frenchsubsidiary to its Swiss parent company in 2005 and 2006. At the end of 2007, asa result of a tax law change in France, the Company determined that a refund ofthese withholding taxes was uncertain and did not meet the more-likely-than-notthreshold for recording a tax receivable. As such, the 2005, 2006 and 2007taxes paid on dividends from the French subsidiary to its Swiss parent wereexpensed through the income tax provision with no corresponding tax receivablerecorded. Because the facts and circumstances around the dividends and thewithholding taxes were the same for all three years and the 2005 and 2006withholding taxes were refunded by the French government, the Company concludedthat it is more likely than not that the 2007 French withholding taxes wouldalso be refunded. As such, the Company also recorded a tax benefit ofapproximately $2.7 million during the third quarter of 2008 for the 2007withholding tax receivable.

 

In July 2006, theFinancial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48,*Accounting for Uncertainty in Income Taxes —an interpretation of FASB Statement 109* (“FIN No. 48”). Amongother things, FIN No. 48 provides guidance to address uncertainty in taxpositions and clarifies the accounting for income taxes by prescribing aminimum recognition threshold which income tax positions must achieve beforebeing recognized in the financial statements. In connection with theadoption of FIN No. 48, the Company recorded a net reduction toretained earnings of $2.0 million as of January 1, 2007. The Company hasunrecognized tax benefits of approximately $20.0 million as of September 30,2008, of which $9.5 million, if recognized, would result in a reduction of theCompany’s effective tax rate. One of the Company’s Swiss entities iscurrently being audited and the audit is expected to be completed during thefourth quarter of 2008. The audit covers tax years 2003-2006 and the Companycannot reasonably estimate the outcome of this audit. As of September 30,2008, the Company does not expect any material changes, except for the Swisstax audit mentioned previously, to unrecognized tax positions within the nexttwelve months.

 

The Company recognizespenalties and interest related to unrecognized tax benefits in the provisionfor income taxes. As of September 30, 2008, approximately $2.6 million ofaccrued interest and penalties related to uncertain tax positions was includedin other current liabilities on the consolidated balance sheet, of which $0.2million and $0.8 million was recorded during the three and nine months ended September 30,2008.

 

The tax years 2003 to2007 are open tax years in the Company’s major taxing jurisdictions. TheCompany files returns in many foreign and state jurisdictions with varyingstatutes of limitations.

 

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**5.Stock-Based Compensation**

 

In 2000, the Board ofDirectors adopted and the shareholders approved the 2000 Stock Option Plan. The2000 Stock Option Plan allows a committee of the Board of Directors to grantincentive stock options, non-qualified stock options, stock appreciation rightsand stock awards (including restricted stock and phantom shares). The committeehas the authority to determine which employees will receive the awards, theamount of the awards and other terms and conditions of the awards. Awardsgranted by the committee typically vest over a period of three to five years.

 

In 2003, the Company’sshareholders approved an amendment and restatement of the 2000 Stock OptionPlan to change the plan name and increase the number of shares available forissuance by 4,132,000 shares, from 2,188,000 shares to 6,320,000 shares. Thename of the amended plan is the Bruker BioSciences Corporation Amended andRestated 2000 Stock Option Plan. In 2006, the Company’s shareholders approvedan amendment and restatement of the Bruker BioSciences Corporation Amended andRestated 2000 Stock Option Plan to increase the number of shares available forissuance by 1,680,000 shares, from 6,320,000 shares to 8,000,000 shares. In January 2008,the Company’s shareholders approved another amendment and restatement of theBruker BioSciences Corporation Amended and Restated 2000 Stock Option Plan toincrease the number of shares available for issuance by 2,000,000 shares, from8,000,000 shares to 10,000,000 shares.

 

As of September 30,2008, the Company’s primary types of share-based compensation were in the formof issuances of stock options and restricted stock. The Company recordedstock-based compensation expense for the three and nine months ended September 30,2008 and 2007, as follows (in thousands):

 
| ** **                                  | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|---------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                  | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| Stock options                               |       | $                                                        | 1,213      |                                                    | $          | 557 |   | $ | 2,714 |   | $ | 1,031 |   |
| Restricted stock                            |       | 116                                                      |       | 143                                                     |       | 401 |   | 466 |   |
| Total  stock-based compensation, pre-tax    |       | 1,329                                                    |       | 700                                                     |       | 3,115 |   | 1,497 |   |
| Tax benefit                                 |       | (200                                                     | )          | (196                                                    | )          | (555 | ) | (419 | ) |
| Total  stock-based compensation, net of tax |       | $                                                        | 1,129      |                                                    | $          | 504 |   | $ | 2,560 |   | $ | 1,078 |   |

 

Restricted shares of theCompany’s common stock are periodically awarded to executive officers andcertain key employees of the Company subject to a service restriction whichexpires ratably over a period of three to five years. The restricted shares ofcommon stock may not be sold or transferred during the restriction period. Stockcompensation for restricted stock is recorded based on the stock price on thegrant date and charged to expense ratably through the restriction period. Thefollowing table summarizes information about restricted stock activity duringthe nine months ended September 30, 2008:

 
| ** **                              | ** ** | ** **          | ** ** | **Weighted**        | ** ** |
|-----------------------------------------|------------|---------------------|------------|---------------------|------------|
| ** **                              | ** ** | **Shares**          | ** ** | **Average**         | ** ** |
| ** **                              | ** ** | **Subject to** | ** ** | **Grant Date** | ** ** |
| ** **                              | ** ** | **Restriction**     | ** ** | **Fair Value** | ** ** |
| Outstanding at  December 31, 2007  |       | 569,402             |       | $                   | 5.74       |   |
| Granted                                 |       | —              |       | —              |       |
| Vested                                  |       | (131,370            | )          | 5.39                |       |
| Forfeited                               |       | (6,180              | )          | 6.39                |       |
| Outstanding at  September 30, 2008 |       | 431,852             |       | $                   | 5.77       |   |

 

Unrecognized pretaxexpense of $1.5 million related to restricted stock awards is expected to berecognized over the weighted average remaining service period of 2.6 years forawards outstanding at September 30, 2008.

 

Stock options of theCompany’s common stock are periodically awarded to executive officers and other

 

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employees of the Companysubject to a vesting period which expires ratably over a period of three tofive years. The fair value of each stock option award is estimated on the dateof grant using the Black-Scholes option-pricing model. Assumptions regardingvolatility, expected term, dividend yield and risk-free interest rate arerequired for the Black-Scholes model. Volatility and expected term assumptionsare based on the Company’s historical experience. The risk-free interest rateis based on a U.S. treasury note with a maturity similar to the stock optionaward’s expected life. The assumptions for volatility, expected life, dividendyield and risk-free interest rate are presented in the table below:

 
| ** **               | ** ** | **2008**      | ** ** | **2007**      | ** ** |
|--------------------------|------------|---------------|------------|---------------|------------|
| Risk-free  interest rate |       | 2.71% - 3.95% |       | 3.48% - 5.21% |       |
| Expected life            |       | 6.5 years     |       | 6.5 years     |       |
| Volatility               |       | 72.0%         |       | 82.0%         |       |
| Expected  dividend yield |       | 0%            |       | 0%            |       |

 

All stock options grantedhad an exercise price equal to or greater than the market value of theunderlying common stock on the date of grant. Stock option activity for thenine months ended September 30, 2008 was as follows:

 
| ** **                              | ** ** | ** **          | ** ** | **Weighted**       | ** ** | **Weighted**                  | ** ** | ** **                                   | ** ** |
|-----------------------------------------|------------|---------------------|------------|--------------------|------------|-------------------------------|------------|----------------------------------------------|------------|
| ** **                              | ** ** | ** **          | ** ** | **Average**        | ** ** | **Average**                   | ** ** | **Aggregate**                                | ** ** |
| ** **                              | ** ** | **Shares**          | ** ** | **Option**         | ** ** | **Remaining**                 | ** ** | **Intrinsic**                                | ** ** |
| ** **                              | ** ** | **Subject to** | ** ** | **Price Per** | ** ** | **Contractual**               | ** ** | **Value**                                    | ** ** |
| ** **                              | ** ** | **Options**         | ** ** | **Share**          | ** ** | **Term (in years)** | ** ** | **($ ’s in 000’s)** | ** ** |
| Outstanding at  December 31, 2007  |       | 4,423,712           |       | $                  | 6.87       |                          |       |                                         |       |   |
| Granted                                 |       | 1,621,500           |       | 12.09              |       |                          |       |                                         |       |
| Exercised                               |       | (652,791            | )          | 5.63               |       |                          |       |                                         |       |
| Forfeited                               |       | (107,298            | )          | 9.22               |       |                          |       |                                         |       |
| Outstanding at  September 30, 2008 |       | 5,285,123           |       | $                  | 8.57       |                          | 4.6        |                                         | $          | 25,819 |   |
| Exercisable at  September 30, 2008 |       | 2,223,356           |       | $                  | 6.97       |                          | 3.9        |                                         | $          | 14,811 |   |

 

The following tablesummarizes information about stock options outstanding and exercisable at September 30,2008:

 
| ** **               | ** ** | **Options Outstanding** | ** ** | **Options Exercisable**  | ** ** |
|--------------------------|------------|------------------------------|------------|-------------------------------|------------|
| ** **               | ** ** | ** **                   | ** ** | **Weighted**                  | ** ** | **Weighted** | ** ** | ** ** | ** ** | ** ** | ** ** | **Weighted** | ** ** | **Weighted** | ** ** | ** ** | ** ** |
| ** **               | ** ** | ** **                   | ** ** | **Average**                   | ** ** | **Average** | ** ** | **Aggregate** | ** ** | ** ** | ** ** | **Average** | ** ** | **Average** | ** ** | **Aggregate** | ** ** |
| ** **               | ** ** | ** **                   | ** ** | **Remaining**                 | ** ** | **Option** | ** ** | **Intrinsic** | ** ** | ** ** | ** ** | **Remaining** | ** ** | **Option** | ** ** | **Intrinsic** | ** ** |
| **Range of**        | ** ** | **Number**                   | ** ** | **Contractual**               | ** ** | **Price Per** | ** ** | **Value** | ** ** | **Number** | ** ** | **Contractual** | ** ** | **Price Per** | ** ** | **Value** | ** ** |
| **Exercise Prices** | ** ** | **Outstanding**              | ** ** | **Term (in years)** | ** ** | **Share** | ** ** | **($’s in 000’s)** | ** ** | **Exercisable** | ** ** | **Term (in years)** | ** ** | **Share** | ** ** | **($’s in 000’s)** | ** ** |
| $2.12 to $4.00           |       | 556,185                      |       | 3.0                           |       | $ | 3.20 |   | $ | 5,636 |   | 498,585 |   | 3.0 |   | $ | 3.19 |   | $ | 5,055 |   |
| $4.01 to $6.00           |       | 1,168,669                    |       | 3.9                           |       | 5.14 |   | 9,568 |   | 770,379 |   | 3.8 |   | 5.09 |   | 6,345 |   |
| $6.01 to $10.00          |       | 1,431,165                    |       | 6.6                           |       | 7.71 |   | 8,047 |   | 488,246 |   | 6.4 |   | 7.26 |   | 2,965 |   |
| $10.01 to $13.00         |       | 1,741,604                    |       | 7.5                           |       | 11.86 |   | 2,556 |   | 186,146 |   | 3.5 |   | 10.94 |   | 446 |   |
| $13.01 and above         |       | 387,500                      |       | 2.6                           |       | 15.01 |   | 12 |   | 280,000 |   | 2.6 |   | 15.68 |   | — |   |
|                     |       | 5,285,123                    |       | 4.6                           |       | $ | 8.57 |   | $ | 25,819 |   | 2,223,356 |   | 3.9 |   | $ | 6.97 |   | $ | 14,811 |   |

 

The intrinsic valuesabove are based on the Company’s closing stock price of $13.33 on September 30,2008. The weighted-average grant-date fair value of options granted during thenine months ended September 30, 2008 was $12.09. Unrecognized pretaxexpense of $19.5 million related to stock options is expected to be recognizedover the weighted average remaining service period of 3.6 years for awards outstandingat September 30, 2008.

 

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**6. FairValue of Financial Instruments**

 

In September 2006,the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 157,*Fair Value Measurements*  (“SFAS No. 157”), which is effective forfiscal years beginning after November 15, 2007. The Company adopted SFAS No. 157as of January 1, 2008.

 

As permitted by FASBStaff Position (“FSP”) SFAS No. 157-2, *EffectiveDate of FASB Statement No. 157*(“FSP SFAS No. 157-2”), theCompany elected to defer the adoption of SFAS No. 157 for allnon-financial assets and non-financial liabilities, except those that arerecognized or disclosed at fair value in the financial statements on arecurring basis until January 1, 2009. There was no cumulative effect ofadoption related to SFAS No. 157 and the adoption did not have an impacton the Company’s financial position, results of operations, or cash flows. TheCompany is studying SFAS No. 157 with respect to non-financial assets andnon-financial liabilities falling under the scope of FSP SFAS No. 157-2 and hasnot yet determined the expected impact on the Company’s financial position, resultsof operations, or cash flows.

 

In October 2008, theFASB issued FSP No. 157-3, *Determiningthe Fair Value of a Financial Asset When the Market for That Asset Is NotActive* (“FSP SFAS No. 157-3”).FSP SFAS No. 157-3 clarifies the application of SFAS No. 157for markets that are not active and provides an example to illustrate the keyconsiderations in determining fair value when the market for a financial assetis not active. FSP SFAS No. 157-3 was effective upon being issued,including prior periods for which financial statements have not been issued.The adoption of this position did not have an effect on the Company’s financialposition, results of operations, or cash flows.

 

SFAS No. 157establishes a three-level valuation hierarchy for measuring fair value andexpands financial statement disclosures about fair value measurements. Thevaluation hierarchy is based upon the transparency of inputs to the valuationof an asset or liability as of the measurement date. The three levels aredefined as follows:

 

*Level1*: Inputs to the valuation methodology are quoted prices(unadjusted) for identical assets or liabilities in active markets.

 

*Level2*: Inputs to the valuation methodology include quoted pricesfor similar assets and liabilities in active markets, and inputs that areobservable for the asset or liability, either directly or indirectly, forsubstantially the full term of the financial instrument.

 

*Level3*:  Inputs to the valuation methodology are unobservableand significant to the fair value measurement.

 

A financial instrument’scategorization within the valuation hierarchy is based upon the lowest level ofinput that is significant to the fair value measurement. The Company measuresthe following financial assets and liabilities at fair value on a recurringbasis. The fair value of these financial assets and liabilities was determinedusing the following inputs at September 30, 2008 (in thousands):

 
| ** **                                  | ** ** | **Total** | ** ** | **Quoted Prices in   Active Markets for  Identical Assets  (Level 1)** | ** ** | **Significant Other  Observable Inputs  (Level 2)** | ** ** | **Significant  Unobservable Inputs  (Level 3)** | ** ** |
|---------------------------------------------|------------|-----------|------------|------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| Assets:                                     |       |      |       |                                                                                                 |       |                                                               |       |                                                      |       |
| Cash equivalents                            |       | $         | 16,547     |                                                                                                 | $          | 16,547                                                             |       | $                                                         | —     |   | $ | — |   |
| Short-term  investments and restricted cash |       | 2,986     |       | 2,986                                                                                                |       | —                                                             |       | —                                                    |       |
| Long-term  restricted cash (a)              |       | 1,739     |       | 1,739                                                                                                |       | —                                                             |       | —                                                    |       |
| Total assets  recorded at fair value        |       | $         | 21,272     |                                                                                                 | $          | 21,272                                                             |       | $                                                         | —     |   | $ | — |   |
|                                        |       |      |       |                                                                                                 |       |                                                               |       |                                                      |       |
| Liabilities:                                |       |      |       |                                                                                                 |       |                                                               |       |                                                      |       |
| Interest rate  swaps                        |       | $         | 137        |                                                                                                 | $          | —                                                             |       | $                                                         | 137        |   | $ | — |   |
| Total  liabilities recorded at fair value   |       | $         | 137        |                                                                                                 | $          | —                                                             |       | $                                                         | 137        |   | $ | — |   |

 

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(a) Long-term restrictedcash is recorded as a component of intangibles and other assets in theunaudited condensed consolidated balance sheets.

 

In February 2007,the FASB issued SFAS No. 159,*The FairValue Option for Financial Assets and Financial Liabilities Including anamendment of FASB Statement No. 115* (“SFAS No. 159”). SFASNo. 159 permits entities

 

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to choose to measure manyfinancial instruments and certain other items at fair value and is effectivefor fiscal years beginning after November 15, 2007. The Company haselected not to apply the fair value option to any of its assets andliabilities.

 

**7. Inventories**

 

Inventories consisted ofthe following as of September 30, 2008 and December 31, 2007 (inthousands):

 
| ** **           | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|----------------------|------------|------------------------|------------|-----------------------|------------|
| ** **           | ** ** | **2008**               | ** ** | **2007**              | ** ** |
| ** **           | ** ** | ** **             | ** ** | ** **            | ** ** |
| Raw materials        |       | $                      | 120,709    |                  | $          | 116,883 |   |
| Work-in process      |       | 147,886                |       | 137,959               |       |
| Demonstration  units |       | 38,701                 |       | 37,195                |       |
| Finished goods       |       | 149,518                |       | 155,651               |       |
| Total  inventories   |       | $                      | 456,814    |                  | $          | 447,688 |   |

 

Finished goods includein-transit systems that have been shipped to the Company’s customers but notyet installed and accepted by the customer. At September 30, 2008 and December 31,2007, inventory in-transit was $79.9 million and $92.0 million, respectively.

 

**8. Goodwill and Other Intangible Assets**

 

The following is asummary of other intangible assets subject to amortization as of September 30,2008 and December 31, 2007 (in thousands):

 
| ** **                               | ** ** | ** **        | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|------------------------------------------|------------|-------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                               | ** ** | **Useful**        | ** ** | **Gross**                        | ** ** | ** **                      | ** ** | **Net** | ** ** | **Gross** | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **                               | ** ** | **Lives**         | ** ** | **Carrying**                     | ** ** | **Accumulated**                 | ** ** | **Carrying** | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** | **Carrying** | ** ** |
| ** **                               | ** ** | **in Years** | ** ** | **Amount**                       | ** ** | **Amortization**                | ** ** | **Amount** | ** ** | **Amount** | ** ** | **Amortization** | ** ** | **Amount** | ** ** |
| Existing  technology and related patents |       | 3 to 10           |       | $                                | 13,973     |                            | $          | (8,714 | ) | $ | 5,259 |   | $ | 13,292 |   | $ | (7,937 | ) | $ | 5,355 |   |
| Customer  relationships                  |       | 5                 |       | 1,158                            |       | (643                            | )          | 515 |   | 1,115 |   | (477 | ) | 638 |   |
| Trade names                              |       | 5 to 10           |       | 439                              |       | (212                            | )          | 227 |   | 439 |   | (176 | ) | 263 |   |
| Total  amortizable intangible assets     |       |              |       | $                                | 15,570     |                            | $          | (9,569 | ) | $ | 6,001 |   | $ | 14,846 |   | $ | (8,590 | ) | $ | 6,256 |   |

 

For the three monthsended September 30, 2008 and 2007, the Company recorded amortizationexpense of $0.4 million and $0.4 million, respectively, related to otheramortizable intangible assets. For the nine months ended September 30,2008 and 2007, the Company recorded amortization expense of $1.2 million and$1.8 million, respectively, related to other amortizable intangible assets.

 

The estimated futureamortization expense related to other intangible assets is as follows (inthousands):

 
| **For the year ending December 31,** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|------------|------------|
| 2008 (a)                                                      |       | $          | 562        |   |
| 2009                                                          |       | 1,764      |       |
| 2010                                                          |       | 1,599      |       |
| 2011                                                          |       | 951        |       |
| 2012                                                          |       | 396        |       |
| Thereafter                                                    |       | 729        |       |
| Total                                                         |       | $          | 6,001      |   |

 

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(a) Amount represents estimatedamortization expense for the remaining three months ended December 31,2008.

 

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The carrying amount ofgoodwill was $48.1 million and $40.8 million as of September 30, 2008 and December 31,2007, respectively, and is included in the BioScience segment. The Companyperforms its annual test for indications of impairment as of December 31eachyear. The Company completed its annual test for impairment as of December 31,2007 and determined that goodwill was not impaired at that time. The Company hasnot identified any indicators of impairment as of September 30, 2008.

 

**9. Warranty Costs**

 

The Company typicallyprovides a one to two year parts and labor warranty with the purchase ofequipment. The anticipated cost for this warranty is accrued upon recognitionof the sale. The Company also offers its customers warranty and serviceagreements extending beyond the initial term of the warranty for a fee. Thesefees are recorded as deferred revenue and amortized into income over the lifeof the extended warranty contract.

 

Changes in the Company’saccrued warranty liability during the nine months ended September 30, 2008were as follows (in thousands):

 
| Warranty accrual  at December 31, 2007       |   | $       | 27,181 |   |
|---------------------------------------------------|--------|---------|--------|--------|
| Accruals for  warranties issued during the period |   | 21,782  |   |
| Settlements of  warranty claims                   |   | (24,446 | )      |
| Foreign currency  impact                          |   | 765     |   |
| Warranty accrual  at September 30, 2008      |   | $       | 25,282 |   |

 

**10. Debt**

 

In connection with theacquisition of Bruker BioSpin, the Company entered into a credit agreement witha syndication of lenders, which is referred to as the Credit Agreement, thatprovides for a revolving credit line with a maximum commitment of $230.0million and a term facility of $150.0 million. The outstanding principal underthe term loan is payable in quarterly installments through December 2012.Borrowings under the Credit Agreement bear interest, at the Company’s option,at either (i) the higher of the prime rate or the federal funds rate plus0.50%, or (ii) adjusted LIBOR, plus margins ranging from 0.40% to 1.25%and a facility fee ranging from 0.10% to 0.20%. As of September 30, 2008,the weighted average interest rate of borrowings under the Credit Agreement wasapproximately 3.5%.

 

Borrowings under theCredit Agreement are secured by the pledge to the banks of 100% of the capitalstock of each of the Company’s wholly-owned domestic subsidiaries and 65% ofthe capital stock of certain of the Company’s direct or indirect wholly-ownedforeign subsidiaries. The Credit Agreement also requires the Company to maintaincertain financial ratios related to maximum leverage and minimum interestcoverage as defined in the Credit Agreement. In addition to the financialratios, the Credit Agreement restricts, among other things, the Company’sability to do the following: make certain payments; incur additional debt;incur certain liens; make certain investments, including derivative agreements;merge, consolidate, sell or transfer all or substantially all of the Company’sassets; and enter into certain transactions with affiliates.

 

At September 30,2008, the Company had outstanding debt totaling $214.0 million consisting of$170.6 million outstanding under the Credit Agreement, $30.5 millionoutstanding under other long-term debt arrangements, $10.6 million outstandingunder other revolving lines of credit and $2.3 million under capital leaseobligations. At December 31, 2007, the Company had outstanding debttotaling $44.2 million consisting of $28.0 million outstanding under otherlong-term debt arrangements, $13.2 million outstanding under other revolvinglines of credit and $3.0 million under capital lease obligations.

 

Amounts outstanding underother long-term debt arrangements at September 30, 2008 include bothcollateralized and uncollateralized arrangements with various financialinstitutions in Germany and Japan. The terms of these arrangements also includefixed and variable interest rates ranging from 1.8% to 8.0% at September 30,2008.

 

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The Company’s otherrevolving lines of credit are with various financial institutions in Germany,Switzerland, Japan and France and have aggregate maximum borrowing amounts ofapproximately $76.2 million and $145.5 million at September 30, 2008 and December 31,2007, respectively. Effective February 26, 2008, the Company terminated a$75.0 million line of credit in the United States and replaced it with therevolving credit available under the Credit Agreement. With consideration tooutstanding letters of credit drawn under revolving lines of credit, theCompany had availability of approximately $51.3 million and $119.0 millionunder other revolving lines of credit at September 30, 2008 and December 31,2007, respectively. The Company’s revolving lines of credit are generallyuncollateralized and bear interest at variable rates ranging from 1.5% to 9.8%at September 30, 2008.

 

**11. Derivative Instruments and Hedging Activities**

 

The Company accounts forderivative financial instruments in accordance with SFAS No. 133,*Accounting for Derivative Instruments and HedgingActivities,*as amended, (“SFASNo. 133”). In April 2008, the Company entered into an interest rateswap arrangement to manage its exposure to interest rate movements and therelated effect on its variable rate debt. Under this interest rate swaparrangement, the Company will pay a fixed rate of 3.8% and receive a variablerate based on three month LIBOR. The initial notional amount of this interestrate swap was $90.0 million and it amortizes in proportion to the term debtcomponent of the Credit Agreement through December 2012. At September 30,2008, the notional amount of this interest rate swap was $87.8 million. TheCompany concluded that this swap met the criteria to qualify as an effectivehedge of the variability of cash flows of the interest payments and accountsfor the hedge as a cash flow hedge under SFAS No. 133. Accordingly, theCompany reflected all changes in the fair value of this interest rate swap inaccumulated other comprehensive income, a component of shareholders’ equity. Asof September 30, 2008, the Company recorded a liability of $0.1 millionrelated to the fair value of the interest rate swap.

 

**12. Employee Benefit Plans**

 

The Company has definedbenefit retirement plans that cover substantially all employees of a BioSciencesubsidiary in Germany who were employed as of September 30, 1997, as wellas all employees of the BioSpin subsidiaries located in Switzerland, France,and Japan and certain employees of a BioSpin subsidiary in Germany. The plansprovide pension benefits based upon final average salary and years of service.

 

The net periodic pensionbenefit cost includes the following components during the three and nine monthsended September 30, 2008 and 2007 (in thousands):

 
| ** **                                   | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|----------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                   | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Components  of net periodic benefit cost** |       |                                                     |       |                                                    |       |   |   |   |   |
| Service cost                                 |       | $                                                        | 1,321      |                                                    | $          | 943 |   | $ | 3,416 |   | $ | 2,704 |   |
| Interest cost                                |       | 1,320                                                    |       | 760                                                     |       | 3,441 |   | 2,257 |   |
| Expected return  on plan assets              |       | (995                                                     | )          | (718                                                    | )          | (3,029 | ) | (2,135 | ) |
| Amortization and  actuarial gains and losses |       | (11                                                      | )          | —                                                  |       | (19 | ) | — |   |
| Net periodic  benefit cost                   |       | $                                                        | 1,635      |                                                    | $          | 985 |   | $ | 3,809 |   | $ | 2,826 |   |

 

The Company madecontributions of $1.9 million to its defined benefit plans during the ninemonths ended September 30, 2008 and estimates contributions of $0.5million during the remainder of 2008.

 

**13. Earnings Per Share**

 

Basic earnings per shareis calculated by dividing net earnings by the weighted average number of commonshares outstanding during the period.  Restricted stock is not included inthe calculation of basic EPS until the time-based restriction has lapsed.Except where the result would be anti-dilutive, the diluted earnings per sharecomputation includes the effect of potential shares, shares which would beissuable upon the exercise of outstanding stock options or outstandingrestricted stock issuable when the restrictions lapse, reduced by the number ofshares which are assumed to be purchased by the Company from the resultingproceeds at the average market price during the period.

 

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The following table setsforth the computation of basic and diluted average shares outstanding for thethree and nine months ended September 30, 2008 and 2007 (in thousands,except per share data):

 
| ** **                                     | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                     | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net income, as  reported                       |       | $                                                        | 17,840     |                                                    | $          | 26,671 |   | $ | 38,841 |   | $ | 58,678 |   |
|                                           |       |                                                     |       |                                                    |       |   |   |   |   |
| **Weighted  average shares outstanding:**      |       |                                                     |       |                                                    |       |   |   |   |   |
| Weighted average  shares outstanding - basic   |       | 162,847                                                  |       | 161,922                                                 |       | 162,531 |   | 161,351 |   |
| Effect of  dilutive securities:                |       |                                                     |       |                                                    |       |   |   |   |   |
| Stock options  and restricted stock            |       | 3,071                                                    |       | 2,302                                                   |       | 3,075 |   | 2,678 |   |
| Weighted average  shares outstanding - diluted |       | 165,918                                                  |       | 164,224                                                 |       | 165,606 |   | 164,029 |   |
| Net income per  common share:                  |       |                                                     |       |                                                    |       |   |   |   |   |
| Basic                                          |       | $                                                        | 0.11       |                                                    | $          | 0.16 |   | $ | 0.24 |   | $ | 0.36 |   |
| Diluted                                        |       | $                                                        | 0.11       |                                                    | $          | 0.16 |   | $ | 0.23 |   | $ | 0.36 |   |

 

Stock options to purchaseapproximately 100,000 shares and 640,000 shares were excluded from thecomputation of diluted earnings per share in the three months ended September 30,2008 and 2007 respectively, and approximately 390,000 shares and 640,000 shareswere excluded from the computation of diluted earnings per share in the ninemonths ended September 30, 2008 and 2007, respectively, because theexercise price of the stock options exceeded the average market price of theCompany’s common stock and, as a result, would have had an anti-dilutiveeffect.

 

**14.Interest and Other Income (Expense), Net**

 

The components of interestand other income (expense), net, were as follows for the three and nine monthsended September 30, 2008 and 2007 (in thousands):

 
| ** **                                                | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| Interest income                                           |       | $                                                        | 677        |                                                    | $          | 3,315 |   | $ | 4,294 |   | $ | 7,803 |   |
| Interest expense                                          |       | (3,384                                                   | )          | (965                                                    | )          | (9,060 | ) | (2,415 | ) |
| Exchange gains  (losses) on foreign currency transactions |       | 3,177                                                    |       | (2,928                                                  | )          | (5,864 | ) | (2,436 | ) |
| Other                                                     |       | 344                                                      |       | 2,158                                                   |       | 2,782 |   | 1,592 |   |
| Interest and  other income (expense), net                 |       | $                                                        | 814        |                                                    | $          | 1,580 |   | $ | (7,848 | ) | $ | 4,544 |   |

 

**15.Comprehensive Income**

 

Comprehensive incomerefers to revenues, expenses, gains and losses that under GAAP are included inother comprehensive income, but excluded from net income as these amounts arerecorded directly as an adjustment to shareholders’ equity, net of tax. Thefollowing is a summary of comprehensive income for the three and nine monthsended September 30, 2008 and 2007 (in thousands):

 

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| ** **                                                                                      | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                                      | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net income                                                                                      |       | $                                                        | 17,840     |                                                    | $          | 26,671 |   | $ | 38,841 |   | $ | 58,678 |   |
| Foreign currency  translation adjustments                                                       |       | (35,794                                                  | )          | 27,537                                                  |       | (612 | ) | 34,963 |   |
| Unrealized gains  (losses) on interest rate swap:                                               |       |                                                     |       |                                                    |       |   |   |   |   |
| Unrealized  holding gains (losses) arising during the period                                    |       | (126                                                     | )          | —                                                  |       | 219 |   | — |   |
| Less  reclassification adjustments for settlements included in the determination of  net income |       | (234                                                     | )          | —                                                  |       | (356 | ) | — |   |
| Unrealized gains  on available for sales securities:                                            |       |                                                     |       |                                                    |       |   |   |   |   |
| Unrealized  holding gains (losses) arising during the period                                    |       | —                                                   |       | (362                                                    | )          | (71 | ) | 336 |   |
| Less reclassification  adjustments for gains included in the determination of net income        |       | —                                                   |       | —                                                  |       | (1,335 | ) | — |   |
| Pension  liability adjustments                                                                  |       | (478                                                     | )          | (21                                                     | )          | (872 | ) | — |   |
| Total  comprehensive income (loss)                                                              |       | $                                                        | (18,792    | )                                                       | $          | 53,825 |   | $ | 35,814 |   | $ | 93,977 |   |

 

**16. Commitmentsand Contingencies**

 

Lawsuits, claims andproceedings of a nature considered normal to its businesses may be pending fromtime to time against the Company. The Company believes the outcome of theseproceedings, if any, will not have a material impact on the Company’s financialposition or results of operations.

 

**17.Letters of Credit and Guarantees**

 

As of September 30,2008 and December 31, 2007, the Company had letters of credit and bankguarantees of $65.1 million and $67.7 million, respectively, for itscustomer advances. Certain of these letters of credit and bank guaranteesaffect the availability of the Company’s lines of credit.

 

**18.Business Segment Information**

 

SFAS No. 131,*Disclosures about Segments of an Enterprise andRelated Information*, establishes standards for reporting informationabout operating segments in annual financial statements of public businessenterprises. It also establishes standards for related disclosures aboutproducts and service, geographic areas and major customers. Operating segmentsare identified as components of an enterprise for which separate discretefinancial information is available for evaluation by the chief operatingdecision maker for the purpose of allocating resources and assessingperformance.

 

In February 2008,the Company completed its acquisition of Bruker BioSpin and, as a result,management reevaluated the way the Company is managed and its internalreporting structure. The Company determined that it had four operatingsegments, representing each of its four divisions; Bruker AXS, BrukerDaltonics, Bruker Optics and Bruker BioSpin. Bruker AXS is in the business ofmanufacturing and distributing advanced X-ray and OES-spark instrumentationused in non-destructive molecular and elemental analysis. Bruker Daltonics isin the business of manufacturing and distributing mass spectrometry instrumentsthat can be integrated and used along with other analytical instruments. BrukerOptics is in the business of manufacturing and distributing research, analyticaland process analysis instruments and solutions based on infrared and Ramanmolecular spectroscopy technologies. Bruker BioSpin is in the business ofmanufacturing and distributing enabling life science tools based on magneticresonance technology, as well as the development and manufacturing of lowtemperature superconductor and high temperature superconductor wires for use inadvanced magnet technology and energy applications.

 

The Company has combinedthe Bruker AXS, Bruker Daltonics and Bruker Optics operating segments into theBioScience reporting segment because each has similar economic characteristics,product processes and services, types and classes of customers, methods ofdistribution and regulatory environments. All historical segment numbers havebeen restated to conform to this change in reportable segments.

 

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Selected business segmentinformation for the three and nine months ended September 30, 2008 and2007 is presented below (in thousands):

 
| ** **                             | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|----------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                             | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Revenue:**                           | ** ** | ** **                                               | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| BioScience                             |       | $                                                        | 141,187    |                                                    | $          | 135,138 |   | $ | 444,409 |   | $ | 372,094 |   |
| BioSpin                                |       | 112,523                                                  |       | 118,482                                                 |       | 388,411 |   | 351,893 |   |
| Corporate,  eliminations and other (a) |       | (11,646                                                  | )          | (11,860                                                 | )          | (40,855 | ) | (36,349 | ) |
| Total                                  |       | $                                                        | 242,064    |                                                    | $          | 241,760 |   | $ | 791,965 |   | $ | 687,638 |   |
|                                   |       |                                                     |       |                                                    |       |   |   |   |   |
| **Operating  income:**                 | ** ** | ** **                                               | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| BioScience                             |       | $                                                        | 8,444      |                                                    | $          | 13,360 |   | $ | 26,920 |   | $ | 30,427 |   |
| BioSpin                                |       | 10,047                                                   |       | 17,659                                                  |       | 46,579 |   | 48,855 |   |
| Corporate,  eliminations and other (a) |       | (3,358                                                   | )          | (1,203                                                  | )          | (13,997 | ) | (7,970 | ) |
| Total                                  |       | $                                                        | 15,133     |                                                    | $          | 29,816 |   | $ | 59,502 |   | $ | 71,312 |   |

 

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(a)   Representsrevenue transactions between segments which are eliminated in consolidation andcorporate costs not allocated to the reportable segments.

 

Total assets by segmentas of September 30, 2008 and December 31, 2007 are as follows (inthousands):

 
| ** **   | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|--------------|------------|------------------------|------------|-----------------------|------------|
| ** **   | ** ** | **2008**               | ** ** | **2007**              | ** ** |
| BioScience   |       | $                      | 613,402    |                  | $          | 584,902 |   |
| BioSpin      |       | 850,849                |       | 782,627               |       |
| Corporate    |       | 390,675                |       | 314,988               |       |
| Eliminations |       | (777,416               | )          | (370,886              | )          |
| Total        |       | $                      | 1,077,510  |                  | $          | 1,311,631 |   |

 

**19.Recent Accounting Pronouncements**

 

In December 2007, theFASB issued SFAS No. 141(R),*BusinessCombinations* (“SFAS No. 141(R)”). This statement willsignificantly change the accounting for business combinations. Under SFAS No. 141(R),an acquiring entity will be required to recognize all of the assets acquiredand liabilities assumed in a transaction at the acquisition date fair valuewith certain limited exceptions. In addition, SFAS No. 141(R) willchange the accounting treatment for acquisition costs, in-process research anddevelopment, restructuring costs associated with business combinations andchanges in deferred tax asset valuation allowances and income tax uncertaintiesafter the acquisition date. SFAS No. 141(R) also includes asignificant number of new disclosure requirements. Early adoption of SFAS No. 141(R) isprohibited, and the Company will be required to apply SFAS No. 141(R) toacquisitions that occur on or after January 1, 2009.

 

In December 2007,the FASB issued SFAS No. 160,*Noncontrolling Interests in Consolidated Financial Statements — An Amendment ofARB No. 51*  (“SFAS No. 160”).This statement establishes new accounting and reporting standards for theminority interest in a subsidiary and the deconsolidation of a subsidiary. SFASNo. 160 is effective as of the beginning of fiscal 2009 and early adoptionis prohibited. The Company has not yet assessed the effect, if any, thatadoption of SFAS No. 160 will have on its results of operations andfinancial position.

 

In March 2008, theFASB issued SFAS No. 161,*Disclosuresabout Derivative Instruments and Hedging Activities — an amendment of FASBStatement No. 133*  (“SFASNo. 161”). SFAS No. 161 requires enhanced disclosures about an entity’sderivative and hedging activities and, thereby, improves the transparency offinancial reporting. SFAS No. 161 is effective for fiscal years beginningon or after November 15, 2008. The Company is 

 

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currently evaluating theimpact that the adoption of SFAS No. 161 will have on its financialposition, results of operations and cash flows.

 

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| **ITEM 2.** | ** ** | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|-------------|------------|-------------------------------------------------------------------------------------------------|

** **

The following discussionof our financial condition and results of operations should be read inconjunction with our interim unaudited condensed consolidated financialstatements and the notes to those statements included in Part 1, Item 1 ofthis Quarterly Report on Form 10-Q, and in conjunction with theconsolidated financial statements contained in our Annual Report on Form 10-Kfor the year ended December 31, 2007.

 

Statements contained inManagement’s Discussion and Analysis of Financial Condition and Results ofOperations which express that we “believe,” “anticipate,” “plan,” “expect,” “seek,”“estimate,” or “should,” as well as other statements which are not historicalfact, are forward-looking statements within the meaning of the PrivateSecurities Litigation Act of 1995. Actual events or results may differmaterially from those set forth in forward-looking statements. Certain factorsthat might cause such a difference are discussed in “Factors Affecting OurBusiness, Operating Results and Financial Condition” set forth in our AnnualReport on Form 10-K for the year ended December 31, 2007.

 

**OVERVIEW**

 

The following Management’sDiscussion and Analysis of Financial Condition and Results of Operations, orMD&A, describes the principal factors affecting the results of ouroperations, financial condition and changes in financial condition, as well asour critical accounting policies and estimates. Our MD&A is organized asfollows:

 

·                  *Executive overview*. This section providesa general description and history of our business, a brief discussion of ourreportable segments, significant recent developments in our business and otheropportunities, challenges and risks that may impact our business in the future.

 

·                  *Critical accounting policies*. This sectiondiscusses the accounting estimates that are considered important to ourfinancial condition and results of operations and require us to exercisesubjective or complex judgments in their application.

 

·                  *Results of operations*. This sectionprovides our analysis of the significant line items on our consolidatedstatement of operations for the three and nine months ended September 30,2008 compared to the three and nine months ended September 30, 2007.

 

·                  *Liquidity and capital resources*. Thissection provides an analysis of our liquidity and cash flow and a discussion ofour outstanding debt and commitments.

 

·                  *Recent accounting pronouncements*. Thissection provides information about new accounting standards that have beenissued but for which adoption is not yet required.

 

**EXECUTIVEOVERVIEW**

 

**Business**

 

Bruker Corporation andits wholly-owned subsidiaries design, manufacture, market and serviceproprietary life science and materials research systems based on our coretechnology platforms, including X-ray technologies, magnetic resonancetechnologies, mass spectrometry technologies, optical emission and infrared andRaman molecular spectroscopy technologies. We also manufacture and distribute abroad range of field analytical systems for chemical, biological, radiologicaland nuclear, or CBRN, detection. We maintain major technical and manufacturingcenters in Europe, North America and Japan and we have sales offices locatedthroughout the world. Our corporate headquarters are located in Billerica,Massachusetts.

 

Our business strategy isto capitalize on our ability to innovate and generate rapid revenue growth,both organically and through acquisitions. Our revenue growth strategy,combined with anticipated improvements to our 

 

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gross profit margins andincreased leverage on our research and development, sales and marketing anddistribution investments and general and administrative expenses, are expectedto enhance our operating margins and improve our earnings in the future.

 

On February 26,2008, we completed our acquisition of Bruker BioSpin. Both the Company andBruker BioSpin were majority owned by six affiliated stockholders prior to theacquisition. As a result, the acquisition of Bruker BioSpin by the Company isconsidered a combination of companies under common control, and has beenaccounted for at historical carrying values. Historical unaudited condensedconsolidated balance sheets, statements of operations, statements of cash flowsand notes to the unaudited condensed consolidated financial statements havebeen restated by combining the historical consolidated financial statements ofBruker Corporation with those of Bruker BioSpin. In addition, because thetransaction is accounted for as an acquisition of businesses under commoncontrol, all one-time transaction costs have been expensed as incurred.

 

With the addition ofBruker BioSpin, we enhanced our position as a leading supplier of life scienceand materials research systems. The technologies of Bruker BioSpin areparticularly complementary to our accurate-mass electrospray time-of-flight massspectrometers and our single-crystal diffraction X-ray spectrometers and areexpected to create revenue synergies and provide opportunities to supplycustomers with equipment packages that have a broader range of applications andvalue. We believe the addition of Bruker BioSpin will also enhance ourdistribution in the Americas, Europe and Asia and our sales and serviceinfrastructure, all of which should provide us with revenue growthopportunities and accelerate our drive to improve our margins, net income andoperating cash flows.

 

Following the acquisitionof Bruker BioSpin, management reevaluated the way we are managed and ourinternal reporting structure and, as a result of that evaluation, determinedthat we have four operating segments, representing each of our four divisions;Bruker AXS, Bruker Daltonics, Bruker Optics and Bruker BioSpin. Bruker AXS isin the business of manufacturing and distributing advanced X-ray and OES-sparkinstrumentation used in non-destructive molecular and elemental analysis.Bruker Daltonics is in the business of manufacturing and distributing massspectrometry instruments that can be integrated and used along with otheranalytical instruments. Bruker Optics is in the business of manufacturing anddistributing research, analytical and process analysis instruments andsolutions based on infrared and Raman molecular spectroscopy technologies.Bruker BioSpin is in the business of manufacturing and distributing enablinglife science tools based on magnetic resonance technology, as well as thedevelopment and manufacturing of low temperature superconductor and hightemperature superconductor wires for use in advanced magnet technology andenergy applications.

 

We have combined theBruker AXS, Bruker Daltonics and Bruker Optics operating segments into theBioScience reporting segment because each has similar economic characteristics,product processes and services, types and classes of customers, methods ofdistribution and regulatory environments. Management reports its results basedon the following reportable segments:

 

·                  *BioScience*. The operations of this segmentinclude the design, manufacture and distribution of advanced instrumentationand automated solutions based on X-ray technology, OES-spark technology, massspectrometry technology and infrared and Raman molecular spectroscopytechnology. Typical customers of the BioScience segment include pharmaceutical,biotechnology, proteomics and molecular diagnostic companies, academicinstitutions, government agencies, semiconductor companies, chemical, cement,metals and petroleum companies, raw material manufacturers and food, beverageand agricultural companies.

 

·                  *BioSpin*. The operations of this segmentinclude the design, manufacture and distribution of enabling life science toolsbased on its core technology, magnetic resonance, as well as the manufacturingand development of low temperature superconductor (LTS) and high temperaturesuperconductor (HTS) wires for use in advanced magnet technology and in energyapplications. Typical customers of the BioSpin segment include pharmaceuticaland biotechnology companies, academic institutions and government agencies.

 

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**FinancialOverview**

 

For the three monthsended September 30, 2008, our revenue increased by $0.3 million, or 0.1%,to $242.1 million, compared to $241.8 million for the comparable period in2007. Included in this change in revenue is approximately $13.6 million fromthe impact of foreign exchange. Excluding the effect of foreign exchange,revenue decreased by $13.3 million, or 5.5%. The decrease in revenue, excludingthe effect of foreign exchange, is attributable to a decrease in system andwire revenue in the BioSpin segment and is related primarily to lower sales ofmagnetic resonance systems. Because of the nature of the magnetic resonanceproducts sold by the BioSpin segment, BioSpin segment revenues are generallysubject to a high degree of volatility when comparing any two quarters, whetherthey be year-over-year or sequential.

 

For the nine months endedSeptember 30, 2008, our revenue increased by $104.4 million, or 15.2%, to$792.0 million, compared to $687.6 million for the comparable period in 2007.Included in this change in revenue is approximately $62.1 million from theimpact of foreign exchange. Excluding the effect of foreign exchange, revenueincreased by $42.3 million, or 6.1%. The increase in revenue, excluding theeffect of foreign exchange, is attributable to increases in system andaftermarket revenues in the BioScience segment. BioScience segment revenuesincreased through growth of a number of product lines, particularly X-raysystems, molecular spectroscopy systems and chemical detection systems.

 

Income from operationsfor the three months ended September 30, 2008 was $15.1 million, resultingin an operating margin of 6.3%, compared to income from operations of $29.8million, resulting in an operating margin of 12.3%, for the comparable periodin 2007. Income from operations decreased as a result of the lower gross profitmargins and higher operating expenses for the three months ended September 30,2008 when compared to the comparable period in 2007.

 

Our gross profit marginfor the third quarter of 2008 was 45.5%, compared 46.0% for the comparableperiod in 2007. Lower gross margins were driven primarily by the the mix ofproducts sold and pricing pressure in certain product lines. Additionally, theincrease in operating expenses related primarily to higher sales and marketingexpenses and higher research and development expenses. The higher costs are aresult of increased headcounts in support of our planned revenue growth and newproduct development and higher material costs associated with a number of newproducts recently released, or scheduled to be released over the next sixmonths. Changes in foreign currency exchange rates, primarily the Euro, alsocontributed significantly to the increase in operating expenses as a majorityof our research and development is performed in Europe.

 

Income from operationsfor the nine months ended September 30, 2008 was $59.5 million, resultingin an operating margin of 7.5%, compared to income from operations of $71.3million, resulting in an operating margin of 10.4%, for the comparable periodin 2007. Income from operations for the nine months ended September 30,2008 includes $6.2 million of charges related to the acquisition of BrukerBioSpin and income from operations for the nine months ended September 30,2007 includes $0.5 million of charges related to the acquisition of BrukerBioSpin. Income from operations, excluding the effect of acquisition-relatedcharges, decreased despite higher revenues and constant gross margins, as aresult of higher operating expenses.

 

Our gross profit marginfor the nine months ended September 30, 2008 and 2007 was 44.4%. Whilegross profit margin was unchanged for the nine months ended September 30,2008 in comparison to the nine months ended September 30, 2007, theincrease in revenue described above resulted in gross margin improvementthrough better factory utilization. Improvements resulting from utilizationwere offset by the mix of products sold and increased pricing pressure incertain product lines. Additionally, the increase in operating expenses relatedprimarily to higher sales and marketing expenses and higher research anddevelopment expenses. The higher costs are a result of increased headcounts insupport of our planned revenue growth and new product development, highercommissions associated with the increase in revenue described above and highermaterial costs associated with a number of new products scheduled to bereleased over the next six months. Changes in foreign currency exchange rates,primarily the Euro, also contributed significantly to the increase in operatingexpenses as a majority of our research and development is performed in Europe.

 

Income from operationsfor the three and nine months ended September 30, 2008 has been belowmanagement’s expectations and, as a result, we began implementing cost savingsprograms throughout our organization. The objective of these programs is torefocus our gross margin improvement programs, reduce our 

 

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operating and interestexpenses and further reduce our exposure to changes in foreign currencyexchange rates. We have also implemented certain programs to improve oureffective tax rate. We currently expect that the implementation of theseinitiatives will result in restructuring charges of approximately $6.0 million.

 

During the nine monthsended September 30, 2008, we recorded net losses on foreign currencytransactions of $5.9 million compared to net losses of $2.4 million for thecomparable period in 2007. Foreign exchange losses of $12.2 million wereincurred in the first three months of 2008 and were driven by there-measurement of certain foreign currency denominated assets, principallycash, inter-company receivables and a short-term inter-company loan into the functionalcurrency of the affected entities. The losses in the first quarter of 2008resulted from the weakening of the U.S. Dollar and the Euro relative to theSwiss Franc by approximately 11% and 3%, respectively, from the date of closingof the Bruker BioSpin acquisition to the end of the first quarter of 2008. Inthe second and third quarters of 2008, we recorded cumulative gains on foreigncurrency transactions of $6.3 million that were also the result of there-measurement of certain foreign currency denominated assets but weexperienced less volatility as a result of settling inter-company balances in atimelier manner and reducing certain foreign currency denominated assets.

 

We incurred approximately$7.2 million of interest expense on acquisition-related debt during the ninemonths ended September 30, 2008, of which approximately $1.6 million wasincurred in the third quarter of 2008. There was no acquisition-related debtoutstanding during the three and nine months ended September 30, 2007. Werepaid approximately $180.0 million of acquisition-related debt during the ninemonths ended September 30, 2008, of which approximately $21.0 millionwas repaid during the third quarter of 2008.

 

Our effective tax ratefor the nine months ended September 30, 2008 was 24.2%, resulting from atax benefit of $2.0 million recorded during the three months ended September 30,2008 and a tax provision of $14.5 million recorded in the first half of 2008.The tax benefit in the third quarter of 2008 was primarily the result of $10.9million related to reversing certain valuation allowances and reaching themore-likely-than-not threshold for recognizing certain tax receivables.

 

Our net income for thethree months ended September 30, 2008 was $17.8 million, or $0.11 per dilutedshare, compared to net income of $26.7 million, or $0.16 per diluted share, forthe comparable period in 2007.

 

Our net income for thenine months ended September 30, 2008 was $38.8 million, or $0.23 perdiluted share, compared to net income of $58.7 million, or $0.36 per dilutedshare, for the comparable period in 2007.

 

**CRITICALACCOUNTING POLICIES**

 

The discussion andanalysis of our financial condition and results of operations is based upon ourconsolidated financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States of America. Thepreparation of these financial statements requires that we make estimates andassumptions that affect the reported amounts of assets and liabilities and thedisclosure of contingent assets and liabilities at the date of the financialstatements and reported amounts of revenues and expenses during the reportingperiod. On an ongoing basis, management evaluates its estimates and judgments,including those related to revenue recognition, allowance for doubtfulaccounts, inventories, goodwill, long-lived assets, warranty costs and incometaxes. We base our estimates and judgments on historical experience, currentmarket and economic conditions, industry trends and other assumptions that webelieve are reasonable and form the basis for making judgments about thecarrying value of assets and liabilities that are not readily apparent fromother sources. Actual results could differ from these estimates.

 

We believe the followingcritical accounting policies to be both those most important to the portrayalof our financial condition and those that require the most subjective judgment.

 

*Revenuerecognition*. We recognize revenue from system sales whenpersuasive evidence of an arrangement exists, the price is fixed ordeterminable, title and risk of loss has been transferred to the customer andcollectibility of the resulting receivable is reasonably assured. Title andrisk of loss is generally transferred to the customer upon receipt of a signedcustomer acceptance form for a system that has been shipped, installed, and forwhich the 

 

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customer has beentrained. As a result, the timing of customer acceptance or readiness couldcause our reported revenues to differ materially from expectations. Whenproducts are sold through an independent distributor or a strategicdistribution partner, which assumes responsibility for installation, werecognize the system sale when the product has been shipped and title and riskof loss have been transferred. Our distributors do not have price protectionrights or rights of return; however, our products are typically warranted to befree from defect for a period of one to two-years. Revenue is deferred untilcash is received when a significant portion of the fee is due over one yearafter delivery, installation and acceptance of a system. For arrangements withmultiple elements, we recognize revenue for each element based on the fairvalue of the element, provided all other criteria for revenue recognition havebeen met. The fair value for each element provided in multiple elementarrangements is typically determined by referencing historical pricing policieswhen the element is sold separately. Changes in our ability to establish thefair value for each element in multiple element arrangements could affect thetiming of revenue recognition. Revenue from accessories and parts is recognizedupon shipment and service revenue is recognized as the services are performed.Grant revenue is recognized when we complete the services required under thegrant.

 

*Warrantycosts*. We normally provide a one to two-year parts and laborwarranty with the purchase of equipment. The anticipated cost for this warrantyis accrued upon recognition of the sale and is included as a current liabilityon the balance sheet. Although our facilities undergo quality assurance andtesting procedures throughout the production process, our warranty obligationis affected by product failure rates, material usage and service delivery costsincurred in correcting a product failure. Although our actual warranty costshave historically been consistent with expectations, to the extent warrantyclaim activity or costs associated with servicing those claims differ from ourestimates, revisions to the warranty accrual may be required.

 

*Inventories*.Inventories are stated at the lower of cost or market, with costs determined bythe first-in, first-out method for a majority of subsidiaries and by averagecost for one international location. We maintain an allowance for excess andobsolete inventory to reflect the expected non-saleable or non-refundableinventory based on an evaluation of slow moving products. If ultimate usage ordemand varies significantly from expected usage or demand, additionalwrite-downs may be required, resulting in a charge to operations.

 

*Goodwill,other intangible assets and other long-lived assets*. Weevaluate whether goodwill and indefinite lived intangible assets are impairedannually and when events occur or circumstances change. Goodwill is impairedwhen the fair value of a reporting unit is less than its carrying amount. Fairvalue is determined using market comparables for similar businesses orforecasts of discounted future cash flows. We also review long-lived intangibleassets and other assets when indication of potential impairment exists, such asa significant reduction in cash flows associated with the assets. Should thefair value of our long-lived assets decline because of reduced operatingperformance, market declines, or other indicators of impairment, a charge tooperations for impairment may be necessary.

 

*Allowancefor doubtful accounts*. We maintain allowances for doubtfulaccounts for estimated losses resulting from the inability of our customers topay amounts due. If the financial condition of our customers were todeteriorate, reducing their ability to make payments, additional allowanceswould be required, resulting in a charge to operations.

 

*Incometaxes*. We estimate the degree to which tax assets and losscarryforwards will result in a benefit based on expected profitability by taxjurisdiction, and provide a valuation allowance for tax assets and losscarryforwards that we believe will more likely than not go unused. If itbecomes more likely than not that a tax asset or loss carryforward will be usedfor which a reserve has been provided, we reverse the related valuationallowance. If our actual future taxable income by tax jurisdiction differs fromestimates, additional allowances or reversals of reserves may be necessary.

 

**RESULTSOF OPERATIONS**

 

***Three Months Ended September 30, 2008 Compared to theThree Months Ended September 30, 2007***

 

***Consolidated Results***

 

The following tablepresents our results for the three months ended September 30, 2008 and2007 (dollars in 

 

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thousands):

 
| ** **                                                                             | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                             | ** ** | **September 30,**           | ** ** |
| ** **                                                                             | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| Product revenue                                                                        |       | $                                | 209,936    |   | $ | 215,838 |   |
| Service revenue                                                                        |       | 30,638                           |       | 24,848 |   |
| Other revenue                                                                          |       | 1,490                            |       | 1,074 |   |
| Total revenue                                                                          |       | 242,064                          |       | 241,760 |   |
|                                                                                   |       |                             |       |   |   |
| Cost of product  revenue                                                               |       | 113,841                          |       | 115,424 |   |
| Cost of service  revenue                                                               |       | 18,153                           |       | 15,228 |   |
| Total cost of  revenue                                                                 |       | 131,994                          |       | 130,652 |   |
| Gross profit                                                                           |       | 110,070                          |       | 111,108 |   |
| Operating  expenses:                                                                   |       |                             |       |   |   |
| Sales and  marketing                                                                   |       | 44,173                           |       | 38,327 |   |
| General and  administrative                                                            |       | 17,675                           |       | 15,580 |   |
| Research and  development                                                              |       | 33,089                           |       | 26,841 |   |
| Acquisition-related  charges                                                           |       | —                           |       | 544 |   |
| Total operating  expenses                                                              |       | 94,937                           |       | 81,292 |   |
| Operating income                                                                       |       | 15,133                           |       | 29,816 |   |
|                                                                                   |       |                             |       |   |   |
| Interest and  other income (expense), net                                              |       | 814                              |       | 1,580 |   |
| Income before  income tax provision and minority interest in consolidated subsidiaries |       | 15,947                           |       | 31,396 |   |
|                                                                                   |       |                             |       |   |   |
| Income tax  provision (benefit)                                                        |       | (1,966                           | )          | 4,616 |   |
|                                                                                   |       |                             |       |   |   |
| Income before  minority interest in consolidated subsidiaries                          |       | 17,913                           |       | 26,780 |   |
| Minority  interest in consolidated subsidiaries                                        |       | 73                               |       | 109 |   |
|                                                                                   |       |                             |       |   |   |
| Net income                                                                             |       | $                                | 17,840     |   | $ | 26,671 |   |
| Net income per  common share - basic and diluted                                       |       | $                                | 0.11       |   | $ | 0.16 |   |
|                                                                                   |       |                             |       |   |   |
| Weighted average  common shares outstanding:                                           |       |                             |       |   |   |
| Basic                                                                                  |       | 162,847                          |       | 161,922 |   |
| Diluted                                                                                |       | 165,918                          |       | 164,224 |   |

 

***Revenue***

 

Our revenue increased by$0.3 million, or 0.1%, to $242.1 million for the three months ended September 30,2008, compared to $241.8 million for the comparable period in 2007. Included inthis change in revenue is approximately $13.6 million from the impact offoreign exchange. Excluding the effect of foreign exchange, revenue decreasedby 5.5%. The decrease in revenue, excluding the effect of foreign exchange, isattributable to a decrease in system and wire revenue in the BioSpin segmentand is related primarily to lower sales of magnetic resonance systems. Becauseof the nature of the magnetic resonance products sold by the BioSpin segment,BioSpin segment revenues are generally subject to a high degree of volatilitywhen comparing any two quarters, whether they be year-over-year or sequential.

 

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***Cost of Revenue***

 

Our cost of product andservice revenue for the three months ended September 30, 2008, was $132.0million, resulting in a gross profit margin of 45.5%, compared to cost ofproduct and service revenue of $130.7 million, resulting in a gross profitmargin of 46.0%, for the comparable period in 2007. Lower gross margins weredriven primarily by the mix of products sold and pricing pressure in certain productlines.

 

***Sales and Marketing***

 

Our sales and marketingexpense for the three months ended September 30, 2008 increased to $44.2million, or 18.4% of product and service revenue, from $38.3 million, or 15.9%of product and service revenue, for the comparable period in 2007. The increasein sales and marketing expense is attributable to increases in headcount insupport of our planned revenue growth. Additionally, changes in foreigncurrency exchange rates, primarily the Euro, have contributed to an increase insales and marketing expense.

 

***General and Administrative***

 

Our general andadministrative expense for the three months ended September 30, 2008increased to $17.7 million, or 7.3% of product and service revenue, from $15.6million, or 6.5% of product and service revenue, for the comparable period in2007. The increase is attributable to additional headcount and was relatedprimarily to Bruker BioSpin becoming part of a publicly-traded company and, toa lesser degree, other acquisitions made during the nine months ended September 30,2008.

 

***Research and Development***

 

Our research anddevelopment expense for the three months ended September 30, 2008increased to $33.1 million, or 13.8% of product and service revenue, from $26.8million, or 11.2% of product and service revenue, for the comparable period in2007. The increase in research and development expenses is attributableprimarily to increases in headcount and higher material costs associated with anumber of new products recently released, or scheduled to be released over thenext six months. Additionally, changes in foreign currency exchange rates,primarily the Euro, have contributed to an increase in research and developmentexpense, as a majority of our research and development is performed in Europe.

 

***Acquisition-Related Charges***

 

On December 3, 2007,we announced that we had entered into a definitive agreement to acquire all ofthe stock of Bruker BioSpin. The acquisition of Bruker BioSpin was approved byour shareholders on February 25, 2008 and was completed on February 26,2008. The acquisition represented a combination of companies under commoncontrol due to a majority of ownership of both Bruker Corporation and BrukerBioSpin by the same individuals and, as a result, transaction costs are expensedas incurred. There were no acquisition-related charges incurred during thethree months ended September 30, 2008. During the three months ended September 30,2007, we incurred and expensed acquisition-related charges totaling $0.5million, which consisted primarily of legal and investment banking fees.

 

***Interest and Other Income (Expense), Net***

 

Interest and other income(expense), net during the three months ended September 30, 2008, was $0.8million, compared to $1.6 million during the three months ended September 30,2007.

 

During the three monthsended September 30, 2008, the major component within interest and otherincome (expense), net, was gains on foreign currency transactions of $3.2million partially offset by net interest expense of $2.7 million.

 

During the three monthsended September 30, 2007, the major components within interest and otherincome (expense), net, were net interest income of $2.4 million and otherincome of $2.2 million partially offset by losses on foreign currency transactionsof $2.9 million.

 

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***Provision (Benefit) for Income Taxes***

 

Our effective tax ratereflects our tax provision (benefit) for non-U.S. entities only, since nobenefit was recognized for losses incurred in the U.S. We will maintain a fullvaluation allowance for our U.S. net operating losses until evidence existsthat it is more likely than not that the loss carryforward amounts will beutilized to offset U.S. taxable income. Our tax rate may change over time asthe amount and mix of income and taxes outside the U.S. changes. The effectivetax rate is calculated using our projected annual pre-tax income or loss and isaffected by research and development tax credits, the expected level of othertax benefits, and the impact of changes to the valuation allowance, as well aschanges in the mix of our pre-tax income and losses among jurisdictions withvarying statutory tax rates and credits.

 

The income tax provision(benefit) for the three months ended September 30, 2008, was $(2.0)million compared to an income tax provision (benefit) of $4.6 million for thethree months ended September 30, 2007, representing effective tax rates of(12.3)% and 14.7%, respectively. The tax benefit in the third quarter of 2008was primarily the result of reversing certain valuation allowances and reachingthe more-likely-than-not threshold for recognizing certain tax receivables.

 

During the third quarterof 2008, two German subsidiaries in the BioSpin segment were merged into athird German subsidiary. As a result of the merger, we will be able to usecertain net operating loss carryforwards that existed in the merged entitiesbut had previously been fully reserved. The valuation allowance related tothese net operating loss carryforwards was reversed in the third quarter of2008 and resulted in a tax benefit of approximately $6.5 million.

 

Additionally, weestablished a profit and loss sharing agreement between two of the Germansubsidiaries of Bruker AXS Inc. during the third quarter of 2008. Thisagreement allows the losses of one entity to reduce the taxable income of theother entity. Prior to this agreement being put in place, certain deferred taxassets related to these entities had full valuation allowances. These valuationallowances were reversed during the third quarter of 2008 resulting in a taxbenefit of approximately $1.2 million.

 

We received a $0.5million refund of French taxes on inter-corporate dividends during the thirdquarter of 2008 which was recorded as a tax benefit. This refund related towithholding taxes paid in connection with dividends paid by a French subsidiaryto its Swiss parent company in 2005 and 2006. At the end of 2007, as a resultof a tax law change in France, we determined that a refund of these withholdingtaxes was uncertain and did not meet the more likely than not threshold forrecording a tax receivable. As such, the 2005, 2006 and 2007 taxes paid ondividends from the French subsidiary to its Swiss parent were expensed throughthe income tax provision with no corresponding tax receivable recorded. Becausethe facts and circumstances around the dividends and the withholding taxes werethe same for all three years and the 2005 and 2006 withholding taxes wererefunded by the French government, we concluded that it is more likely than notthat the 2007 French withholding taxes would also be refunded. As such, we alsorecorded a tax benefit of approximately $2.7 million during the third quarterof 2008 for the 2007 withholding tax receivable.

 

***Minority Interest in Consolidated Subsidiaries***

 

Minority interest inconsolidated subsidiaries for the three months ended September 30, 2008and September 30, 2007 was $0.1 million. The minority interest insubsidiaries represents the minority shareholders’ proportionate share of netincome of those subsidiaries for the three months ended September 30, 2008and 2007. The minority interest relates to our two majority-owned indirectsubsidiaries, InCoaTec GmbH and Bruker Baltic Ltd.

 

***Net Income***

 

Our net income for thethree months ended September 30, 2008, was $17.8 million, or $0.11 perdiluted share, compared to net income of $26.7 million, or $0.16 per diluted share,for the comparable period in 2007.

 

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***Segment Results***

 

***Revenue***

 

The following tablepresents revenue, change in revenue and revenue growth by reportable segmentfor the three months ended September 30, 2008 and 2007 (dollars inthousands):

 
| ** **       | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | **Percentage** | ** ** |
|------------------|------------|------------|------------|------------|------------|-------------------|------------|----------------|------------|
| ** **       | ** ** | **2008**   | ** ** | **2007**   | ** ** | **$ Change** | ** ** | **Change**     | ** ** |
| BioScience       |       | $          | 141,187    |       | $          | 135,138           |       | $              | 6,049      |   | 4.5 | % |
| BioSpin          |       | 112,523    |       | 118,482    |       | (5,959            | )          | (5.0           | )%         |
| Eliminations (a) |       | (11,646    | )          | (11,860    | )          | 214               |       |           |       |
| Total Revenue    |       | $          | 242,064    |       | $          | 241,760           |       | $              | 304        |   | 0.1 | % |

 

----

(a) Representsproduct and service revenue between reportable segments.

 

***BioScience Segment Revenues***

 

BioScience segmentrevenue increased by $6.0 million, or 4.5%, to $141.2 million for the threemonths ended September 30, 2008, compared to $135.1 million for thecomparable period in 2007. Included in this change in revenue is approximately$8.3 million from the impact of foreign exchange. Excluding the effect offoreign exchange, revenue decreased by 1.6%. The decrease in revenue, excludingthe effect of foreign exchange, is attributable to a decrease in sales of X-raysystems offset, in part, by higher sales of molecular spectroscopy systems andchemical detection systems. Revenue in the three months ended September 30,2007 includes $0.8 million of molecular spectroscopy revenue that wasrecognized from our order with the Chinese State Food and Drug Administration.The order from the Chinese State Food and Drug Administration was completedduring 2007 and we did not recognize any system revenue from this order duringthe three months ended September 30, 2008.

 

System revenue, othersystem revenue and aftermarket revenue as a percentage of total BioSciencesegment revenue were as follows during the three months ended September 30,2008 and 2007 (dollars in thousands):

 
| ** **            | ** ** | **2008**    | ** ** | **2007**                 | ** ** |
|-----------------------|------------|-------------|------------|--------------------------|------------|
| ** **            | ** ** | ** **  | ** ** | **Percentage of**   | ** ** | ** ** | ** ** | **Percentage of** | ** ** |
| ** **            | ** ** | **Revenue** | ** ** | **Segment Revenue** | ** ** | **Revenue** | ** ** | **Segment Revenue** | ** ** |
| System Revenue        |       | $           | 101,679    |                     | 72.0       | % | $ | 100,798 |   | 74.6 | % |
| Other System  Revenue |       | 8,587       |       | 6.1                      | %          | 7,763 |   | 5.7 | % |
| Aftermarket  Revenue  |       | 30,921      |       | 21.9                     | %          | 26,577 |   | 19.7 | % |
| Total Revenue         |       | $           | 141,187    |                     | 100.0      | % | $ | 135,138 |   | 100.0 | % |

 

System revenues in theBioScience segment include X-ray systems, mass spectrometry systems, CBRNdetection systems and molecular spectroscopy systems. Other system revenues inthe BioScience segment relate primarily to the distribution of products notmanufactured by the BioScience segment. Aftermarket revenues in the BioSciencesegment include accessory sales, consumables, training and services.

 

***BioSpin Segment Revenues***

 

BioSpin segment revenuedecreased by $6.0 million, or 5.0%, to $112.5 million for the three monthsended September 30, 2008, compared to $118.5 million for the comparableperiod in 2007. Included in this change in revenue is approximately $5.3million from the impact of foreign exchange. Excluding the effect of foreignexchange, revenue decreased by 9.5%. The decrease in revenue, excluding theeffect of foreign exchange, is attributable to decreases in magnetic resonancesystem revenues. Because of the nature of the magnetic resonance products soldby the BioSpin segment, particularly the complexity of the instruments coupled withrelatively low volumes and high selling prices, BioSpin segment revenues aregenerally subject to a high degree of volatility when comparing any twoquarters, whether they be year-over-year or sequential.

 

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System and wire revenue,other system revenue and aftermarket revenue as a percentage of total BioSpinsegment revenue were as follows during the three months ended September 30,2008 and 2007 (dollars in thousands):

 
| ** **               | ** ** | **2008**    | ** ** | **2007**                 | ** ** |
|--------------------------|------------|-------------|------------|--------------------------|------------|
| ** **               | ** ** | ** **  | ** ** | **Percentage of**   | ** ** | ** ** | ** ** | **Percentage of** | ** ** |
| ** **               | ** ** | **Revenue** | ** ** | **Segment Revenue** | ** ** | **Revenue** | ** ** | **Segment Revenue** | ** ** |
| System and Wire  Revenue |       | $           | 81,305     |                     | 72.3       | % | $ | 88,488 |   | 74.7 | % |
| Other System  Revenue    |       | 2,016       |       | 1.8                      | %          | 3,322 |   | 2.8 | % |
| Aftermarket  Revenue     |       | 29,202      |       | 25.9                     | %          | 26,672 |   | 22.5 | % |
| Total Revenue            |       | $           | 112,523    |                     | 100.0      | % | $ | 118,482 |   | 100.0 | % |

 

System and wire revenuesin the BioSpin segment include nuclear magnetic resonance systems, magneticresonance imaging systems, electron paramagnetic resonance systems, Minispecsystems, power supplies and our LTS and HTS wire business. Other systemrevenues in the BioSpin segment relate primarily to the distribution ofproducts not manufactured by the BioSpin segment. Aftermarket revenues in theBioSpin segment include accessory sales, consumables, training and services.

 

***Income from Operations***

 

The following tablepresents income from operations and operating margins on revenue by reportablesegment for the three months ended September 30, 2008 and 2007 (dollars inthousands):

 
| ** **                             | ** ** | **2008**      | ** ** | **2007**      | ** ** |
|----------------------------------------|------------|---------------|------------|---------------|------------|
| ** **                             | ** ** | **Operating** | ** ** | **Operating** | ** ** | **Operating** | ** ** | **Operating** | ** ** |
| ** **                             | ** ** | **Income**    | ** ** | **Margin**    | ** ** | **Income** | ** ** | **Margin** | ** ** |
| BioScience                             |       | $             | 8,444      |          | 6.0        | % | $ | 13,360 |   | 9.9 | % |
| BioSpin                                |       | 10,047        |       | 8.9           | %          | 17,659 |   | 14.9 | % |
| Corporate, eliminations  and other (a) |       | (3,358        | )          |          |       | (1,203 | ) |   |   |
| Total Operating  Income                |       | $             | 15,133     |          | 6.3        | % | $ | 29,816 |   | 12.3 | % |

 

----

(a) Represents corporate costs not allocated to the reportablesegments.

 

BioScience segment incomefrom operations for the three months ended September 30, 2008 was $8.4million, resulting in an operating margin of 6.0%, compared to income fromoperations of $13.4 million, resulting in an operating margin of 9.9%, for thecomparable period in 2007.

 

Income from operations inthe BioScience segment decreased as a result of lower gross margins as apercentage of total revenue and higher operating expenses for the three monthsended September 30, 2008 relative to the comparable period in 2007. Lowergross margins were driven primarily by the mix of products sold and pricingpressure in certain product lines. The increase in operating expenses relatesprimarily to higher research and development expenses and higher sales andmarketing expenses. The increase in costs are a result of increased headcountsin support of our new product development and planned revenue growth and highermaterial costs associated with a number of new products recently released, orscheduled to be released over the next six months. Changes in foreign currencyexchange rates, primarily the Euro, also contributed to the increase inoperating expenses as a majority of research and development in the BioSciencesegment is performed in Europe.

 

BioSpin segment incomefrom operations for the three months ended September 30, 2008 was $10.0million, resulting in an operating margin of 8.9%, compared to income fromoperations of $17.7 million and an operating margin of 14.9%, for thecomparable period in 2007.

 

BioSpin segment incomefrom operations decreased as a result of lower revenues and higher operatingexpenses for the three months ended September 30, 2008 when compared tothe comparable period in 2007. While gross

 

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margins as a percentageof total revenue were unchanged in the third quarter of 2008 compared to thethird quarter of 2007, lower revenues resulted in less gross profit. Theincrease in operating expenses is a result of increased headcounts in supportof our planned revenue growth and new product development and higher materialcosts associated with a number of new products recently released, or scheduledto be released over the next six months. Changes in foreign currency exchange rates,primarily the Euro, also contributed to the increase in operating expenses, asa majority of research and development in the BioSpin segment is performed inEurope.

 

***Nine Months Ended September 30, 2008 Compared to theNine Months Ended September 30, 2007***

 

***Consolidated Results***

 

The following tablepresents our results for the nine months ended September 30, 2008 and 2007(dollars in thousands):

 
| ** **                                                                             | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                             | ** ** | **September 30,**          | ** ** |
| ** **                                                                             | ** ** | **2008**                        | ** ** | **2007** | ** ** |
| Product revenue                                                                        |       | $                               | 695,820    |   | $ | 607,624 |   |
| Service revenue                                                                        |       | 92,328                          |       | 77,605 |   |
| Other revenue                                                                          |       | 3,817                           |       | 2,409 |   |
| Total revenue                                                                          |       | 791,965                         |       | 687,638 |   |
|                                                                                   |       |                            |       |   |   |
| Cost of product  revenue                                                               |       | 380,673                         |       | 332,883 |   |
| Cost of service  revenue                                                               |       | 59,455                          |       | 49,184 |   |
| Total cost of  revenue                                                                 |       | 440,128                         |       | 382,067 |   |
| Gross profit                                                                           |       | 351,837                         |       | 305,571 |   |
|                                                                                   |       |                            |       |   |   |
| Operating  expenses:                                                                   |       |                            |       |   |   |
| Sales and  marketing                                                                   |       | 133,717                         |       | 110,818 |   |
| General and  administrative                                                            |       | 51,657                          |       | 42,435 |   |
| Research and  development                                                              |       | 100,808                         |       | 80,462 |   |
| Acquisition-related  charges                                                           |       | 6,153                           |       | 544 |   |
| Total operating  expenses                                                              |       | 292,335                         |       | 234,259 |   |
| Operating income                                                                       |       | 59,502                          |       | 71,312 |   |
|                                                                                   |       |                            |       |   |   |
| Interest and  other income (expense), net                                              |       | (7,848                          | )          | 4,544 |   |
| Income before  income tax provision and minority interest in consolidated subsidiaries |       | 51,654                          |       | 75,856 |   |
| Income tax  provision                                                                  |       | 12,500                          |       | 16,923 |   |
| Income before  minority interest in consolidated subsidiaries                          |       | 39,154                          |       | 58,933 |   |
| Minority  interest in consolidated subsidiaries                                        |       | 313                             |       | 255 |   |
| Net income                                                                             |       | $                               | 38,841     |   | $ | 58,678 |   |
| Net income per  common share:                                                          |       |                            |       |   |   |
| Basic                                                                                  |       | $                               | 0.24       |   | $ | 0.36 |   |
| Diluted                                                                                |       | $                               | 0.23       |   | $ | 0.36 |   |
|                                                                                   |       |                            |       |   |   |
| Weighted average  common shares outstanding:                                           |       |                            |       |   |   |
| Basic                                                                                  |       | 162,531                         |       | 161,351 |   |
| Diluted                                                                                |       | 165,606                         |       | 164,029 |   |

 

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***Revenue***

 

Our revenue increased by$104.4 million, or 15.2%, to $792.0 million for the nine months ended September 30,2008, compared to $687.6 million for the comparable period in 2007. Included inthis change in revenue is approximately $62.1 million from the impact offoreign exchange. Excluding the effect of foreign exchange, revenue increasedby 6.1%. The increase in revenue, excluding the effect of foreign exchange, isattributable to increases in system and aftermarket revenues in the BioSciencesegment. BioScience segment revenues increased through growth of a number ofproduct lines, particularly X-ray systems, molecular spectroscopy systems andchemical detection systems.

 

***Cost of Revenue***

 

Our cost of product andservice revenue for the nine months ended September 30, 2008 was $440.1million, resulting in a gross profit margin of 44.4%, compared to cost ofproduct and service revenue of $382.1 million, resulting in a gross profitmargin of 44.4%, for the comparable period in 2007. While gross profit marginswere unchanged for the nine months ended September 30, 2008 in comparisonto the nine months ended September 30, 2007, the increase in revenuedescribed above resulted in gross margin improvement through better factoryutilization. Improvements resulting from utilization were offset by the mix ofproducts sold and increased pricing pressure in certain product lines.

 

***Sales and Marketing***

 

Our sales and marketingexpense for the nine months ended September 30, 2008 increased to $133.7million, or 17.0% of product and service revenue, from $110.8 million, or 16.2%of product and service revenue, for the comparable period in 2007. The increasein sales and marketing expense is attributable to increases in headcount insupport of our planned revenue growth and higher commissions associated withthe increase in revenue described above. Additionally, changes in foreigncurrency exchange rates, primarily the Euro, have contributed to an increase insales and marketing expense.

 

***General and Administrative***

 

Our general andadministrative expense for the nine months ended September 30, 2008increased to $51.7 million, or 6.6% of product and service revenue, from $42.4million, or 6.2% of product and service revenue, for the comparable period in2007. The increase is attributable to additional headcount and was relatedprimarily to Bruker BioSpin becoming part of a publicly-traded company and to alesser degree, other acquisitions made during the nine months ended September 30,2008.

 

***Research and Development***

 

Our research anddevelopment expense for the nine months ended September 30, 2008 increasedto $100.8 million, or 12.8% of product and service revenue, from $80.5 million,or 11.7% of product and service revenue, for the comparable period in 2007. Theincrease in research and development expenses is attributable primarily to anincrease in headcount and higher material costs associated with a number of newproducts recently released, or scheduled to be released over the next sixmonths. Additionally, changes in foreign currency exchange rates, primarily theEuro, have contributed to an increase in research and development expense, as amajority of our research and development is performed in Europe.

 

***Acquisition-Related Charges***

 

On December 3, 2007,we announced that we had entered into a definitive agreement to acquire all ofthe stock of Bruker BioSpin. The acquisition of Bruker BioSpin was approved byour shareholders on February 25, 2008 and was completed on February 26,2008. The acquisition represented a business combination of companies undercommon control due to a majority of ownership of both Bruker Corporation andBruker BioSpin by the same individuals and, as a result, transaction costs areexpensed as incurred. During the nine months ended September 30, 2008, weincurred and expensed acquisition-related charges totaling $6.2 million, whichconsisted of

 

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investment banking fees,legal fees and accounting fees. During the nine months ended September 30,2007, we incurred and expensed acquisition-related charges totaling $0.5million, which consisted primarily of legal and investment banking fees.

 

***Interest and Other Income (Expense), Net***

 

Interest and other income(expense), net during the nine months ended September 30, 2008 was $(7.8)million, compared to $4.5 million during the nine months ended September 30,2007.

 

During the nine monthsended September 30, 2008, the major component within interest and otherincome (expense), net, was losses on foreign currency transactions of $5.9million. Foreign exchange losses of $12.2 million incurred in the first threemonths of 2008 was driven primarily by the re-measurement of certain foreigncurrency denominated assets, principally cash, inter-company receivables and ashort-term inter-company loan, into the functional currency of the affectedentities. The losses resulted from the weakening of the U.S. Dollar and theEuro relative to the Swiss Franc by approximately 11% and 3%, respectively,during the five weeks between the closing of the Bruker BioSpin acquisition andthe end of the first quarter of 2008.

 

During the nine months endedSeptember 30, 2007, the major component within interest and other income(expense), net, was net interest income of $5.4 million partially offset bylosses on foreign currency transactions of $2.4 million.

 

***Provision for Income Taxes***

 

Our effective tax ratereflects our tax provision (benefit) for non-U.S. entities only, since nobenefit was recognized for losses incurred in the U.S. We will maintain a fullvaluation allowance for our U.S. net operating losses until evidence existsthat it is more likely than not that the loss carryforward amounts will beutilized to offset U.S. taxable income. Our tax rate may change over time asthe amount and mix of income and taxes outside the U.S. changes. The effectivetax rate is calculated using our projected annual pre-tax income or loss and isaffected by research and development tax credits, the expected level of othertax benefits, and the impact of changes to the valuation allowance, as well aschanges in the mix of our pre-tax income and losses among jurisdictions withvarying statutory tax rates and credits.

 

The income tax provisionfor the nine months ended September 30, 2008 was $12.5 million compared toan income tax provision of $16.9 million for the nine months ended September 30,2007, representing effective tax rates of 24.2% and 22.3%, respectively. Theeffective tax rate for the nine months ended September 30, 2008 wasfavorably impacted as a result of reversing certain valuation allowances andreaching the more-likely-than-not threshold for recognizing certain taxreceivables. These favorable items were offset, in part, by acquisition-relatedcharges and the foreign exchange losses that resulted in only modest taxbenefits.

 

During the third quarterof 2008, two German subsidiaries in the BioSpin segment were merged into athird German subsidiary. As a result of the merger, we will be able to usecertain net operating loss carryforwards that existed in the merged entitiesbut had previously been fully reserved. The valuation allowance related to thesenet operating loss carryforwards was reversed in the third quarter of 2008 andresulted in a tax benefit of approximately $6.5 million.

 

Additionally, weestablished a profit and loss sharing agreement between two of the Germansubsidiaries of Bruker AXS Inc. during the third quarter of 2008. Thisagreement allows the losses of one entity to reduce the taxable income of theother entity. Prior to this agreement being put in place, certain deferred taxassets related to these entities had full valuation allowances. These valuationallowances were reversed during the third quarter of 2008 resulting in a taxbenefit of approximately $1.2 million.

 

We received a $0.5million refund of French taxes on inter-corporate dividends during the thirdquarter of 2008 which was recorded as a tax benefit. This refund related towithholding taxes paid in connection with dividends paid by a French subsidiaryto its Swiss parent company in 2005 and 2006. At the end of 2007, as a resultof a tax law change in France, we determined that a refund of these withholdingtaxes was uncertain and did not meet the more-likely-than-not threshold forrecording a tax receivable. As such, the 2005, 2006 and 2007 taxes paid on

 

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dividends from the Frenchsubsidiary to its Swiss parent were expensed through the income tax provisionwith no corresponding tax receivable recorded. Because the facts and circumstancesaround the dividends and the withholding taxes were the same for all threeyears and the 2005 and 2006 withholding taxes were refunded by the Frenchgovernment, we concluded that it is more likely than not that the 2007 Frenchwithholding taxes would also be refunded. As such, we also recorded a taxbenefit of approximately $2.7 million during the third quarter of 2008 for the2007 withholding tax receivable.

 

The acquisition-relatedcosts did not generate significant tax benefits for us because they wereincurred primarily in the U.S. and the foreign exchange losses did not generatesignificant tax benefits for us because they occurred in foreign locations withrelatively low tax rates.

 

***Minority Interest in Consolidated Subsidiaries***

 

Minority interest inconsolidated subsidiaries for the nine months ended September 30, 2008 andSeptember 30, 2007 was $0.3 million. The minority interest in subsidiariesrepresents the minority shareholders’ proportionate share of net income ofthose subsidiaries for the nine months ended September 30, 2008 and 2007.The minority interest relates to our two majority-owned indirect subsidiaries,InCoaTec GmbH and Bruker Baltic Ltd.

 

***Net Income***

 

Our net income for thenine months ended September 30, 2008, was $38.8 million, or $0.23 perdiluted share, compared to $58.7 million, or $0.36 per diluted share, for thecomparable period in 2007.

 

***Segment Results***

 

***Revenue***

 

The following tablepresents revenue, change in revenue and revenue growth by reportable segmentfor the nine months ended September 30, 2008 and 2007 (dollars inthousands):

 
| ** **       | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | **Percentage** | ** ** |
|------------------|------------|------------|------------|------------|------------|-------------------|------------|----------------|------------|
| ** **       | ** ** | **2008**   | ** ** | **2007**   | ** ** | **$ Change** | ** ** | **Change**     | ** ** |
| BioScience       |       | $          | 444,409    |       | $          | 372,094           |       | $              | 72,315     |   | 19.4 | % |
| BioSpin          |       | 388,411    |       | 351,893    |       | 36,518            |       | 10.4           | %          |
| Eliminations (a) |       | (40,855    | )          | (36,349    | )          | (4,506            | )          |           |       |
| Total Revenue    |       | $          | 791,965    |       | $          | 687,638           |       | $              | 104,327    |   | 15.2 | % |

 

----

(a) Representsproduct and service revenue between reportable segments.

 

***BioScience Segment Revenues***

 

BioScience segmentrevenue increased by $72.3 million, or 19.4%, to $444.4 million for the ninemonths ended September 30, 2008, compared to $372.1 million for thecomparable period in 2007. Included in this change in revenue is approximately$30.3 million from the impact of foreign exchange. Excluding the effect offoreign exchange, revenue increased by 11.3%. The increase in revenue,excluding the effect of foreign exchange, is attributable to increases insystem revenues across several of the product lines, in particular X-raysystems, molecular spectroscopy systems and chemical detection systems, as wellas higher aftermarket revenue. Revenues in the nine months ended September 30,2007 include $4.9 million of molecular spectroscopy revenue that was recognizedfrom our order with the Chinese State Food and Drug Administration. The orderfrom the Chinese State Food and Drug Administration was completed during 2007and we did not recognize any system revenue from this order during the ninemonths ended September 30, 2008.

 

System revenue, othersystem revenue and aftermarket revenue as a percentage of total BioSciencesegment

 

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revenue were as followsduring the nine months ended September 30, 2008 and 2007 (dollars inthousands):

 
| ** **            | ** ** | **2008**    | ** ** | **2007**                 | ** ** |
|-----------------------|------------|-------------|------------|--------------------------|------------|
| ** **            | ** ** | ** **  | ** ** | **Percentage of**   | ** ** | ** ** | ** ** | **Percentage of** | ** ** |
| ** **            | ** ** | **Revenue** | ** ** | **Segment Revenue** | ** ** | **Revenue** | ** ** | **Segment Revenue** | ** ** |
| System Revenue        |       | $           | 323,473    |                     | 72.8       | % | $ | 275,180 |   | 74.0 | % |
| Other System  Revenue |       | 30,566      |       | 6.9                      | %          | 23,212 |   | 6.2 | % |
| Aftermarket  Revenue  |       | 90,370      |       | 20.3                     | %          | 73,702 |   | 19.8 | % |
| Total Revenue         |       | $           | 444,409    |                     | 100.0      | % | $ | 372,094 |   | 100.0 | % |

 

System revenues in theBioScience segment include X-ray systems, mass spectrometry systems, CBRNdetection systems and molecular spectroscopy systems. Other system revenues inthe BioScience segment relate primarily to the distribution of products notmanufactured by the BioScience segment. Aftermarket revenues in the BioSciencesegment include accessory sales, consumables, training and services.

 

***BioSpin Segment Revenues***

 

BioSpin segment revenueincreased by $36.5 million, or 10.4%, to $388.4 million for the nine monthsended September 30, 2008, compared to $351.9 million for the comparableperiod in 2007. Included in this change in revenue is approximately $31.8million from the impact of foreign exchange. Excluding the effect of foreignexchange, revenue increased by 1.3%.

 

System and wire revenue,other system revenue and aftermarket revenue as a percentage of total BioSpinsegment revenue were as follows during the nine months ended September 30,2008 and 2007 (dollars in thousands):

 
| ** **               | ** ** | **2008**    | ** ** | **2007**                 | ** ** |
|--------------------------|------------|-------------|------------|--------------------------|------------|
| ** **               | ** ** | ** **  | ** ** | **Percentage of**   | ** ** | ** ** | ** ** | **Percentage of** | ** ** |
| ** **               | ** ** | **Revenue** | ** ** | **Segment Revenue** | ** ** | **Revenue** | ** ** | **Segment Revenue** | ** ** |
| System and Wire  Revenue |       | $           | 294,350    |                     | 75.8       | % | $ | 265,088 |   | 75.3 | % |
| Other System  Revenue    |       | 14,151      |       | 3.6                      | %          | 7,756 |   | 2.2 | % |
| Aftermarket  Revenue     |       | 79,910      |       | 20.6                     | %          | 79,049 |   | 22.5 | % |
| Total Revenue            |       | $           | 388,411    |                     | 100.0      | % | $ | 351,893 |   | 100.0 | % |

 

System and wire revenuesin the BioSpin segment include nuclear magnetic resonance systems, magneticresonance imaging systems, electron paramagnetic resonance systems, Minispecsystems, power supplies and our LTS and HTS wire business. Other systemrevenues in the BioSpin segment relate primarily to the distribution ofproducts not manufactured by the BioSpin segment. Aftermarket revenues in theBioSpin segment include accessory sales, consumables, training and services.

 

***Income from Operations***

 

The following tablepresents income from operations and operating margins on revenue by reportablesegment for the nine months ended September 30, 2008 and 2007 (dollars inthousands):

 

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| ** **                         | ** ** | **2008**      | ** ** | **2007**      | ** ** |
|------------------------------------|------------|---------------|------------|---------------|------------|
| ** **                         | ** ** | **Operating** | ** ** | **Operating** | ** ** | **Operating** | ** ** | **Operating** | ** ** |
| ** **                         | ** ** | **Income**    | ** ** | **Margin**    | ** ** | **Income** | ** ** | **Margin** | ** ** |
| BioScience                         |       | $             | 26,920     |          | 6.1        | % | $ | 30,427 |   | 8.2 | % |
| BioSpin                            |       | 46,579        |       | 12.0          | %          | 48,855 |   | 13.9 | % |
| Corporate,  eliminations and other |       | (13,997       | )          |          |       | (7,970 | ) |   |   |
| Total Operating  Income            |       | $             | 59,502     |          | 7.5        | % | $ | 71,312 |   | 10.4 | % |

 

----

(a) Represents corporate costs not allocated to the reportablesegments.

 

Income from operationsfor the BioScience segment in the nine months ended September 30, 2008,was $26.9 million, resulting in an operating margin of 6.1%, compared to incomefrom operations of $30.4 million, resulting in an operating margin of 8.2%, forthe comparable period in 2007.

 

Income from operations inthe BioScience segment decreased, despite the increase in revenues, as a resultof lower gross margins as a percentage of total revenue and higher operatingexpenses for the nine months ended September 30, 2008 when compared to thecomparable period in 2007. Lower gross margins were driven primarily by the mixof products sold and pricing pressure in certain product lines. The increase inoperating expenses relates primarily to sales and marketing expenses andresearch and development expenses. The higher costs are a result of increasedheadcounts in support of our planned revenue growth and new productdevelopment, higher commissions associated with our increase in revenue andhigher material costs associated with a number of new products recentlyreleased, or scheduled to be released over the next six months. Changes inforeign currency exchange rates, primarily the Euro, also contributed to theincrease in operating expenses, as a majority of research and development inthe BioScience segment is performed in Europe.

 

BioSpin segment incomefrom operations for the nine months ended September 30, 2008, was $46.6million, resulting in an operating margin of 12.0%, compared to income fromoperations of $48.9 million, resulting in an operating margin of 13.9%, for thecomparable period in 2007.

 

BioSpin segment incomefrom operations decreased, despite improvement in gross margins, as a result ofhigher operating expenses for the nine months ended September 30, 2008relative to the comparable period in 2007. The improvement in gross margin as apercentage of total revenue was primarily the result of improved factoryutilization and, to a lesser degree, the mix of products sold. However, theincrease in gross margins was more than offset by higher operating expenses,related primarily to sales and marketing expenses and research and developmentexpenses. The costs are a result of increased headcounts in support of ourplanned revenue growth and new product development and higher material costs associatedwith a number of new products recently released, or scheduled to be releasedover the next six months. Changes in foreign currency exchange rates, primarilythe Euro, also contributed to the increase in operating expenses, as a majorityof research and development in the BioSpin segment is performed in Europe.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

We currently anticipatethat our existing cash and credit facilities will be sufficient to support ouroperating and investing needs for at least the next twelve months, but thisdepends on our profitability and our ability to manage working capitalrequirements. Our future cash requirements will also be affected byacquisitions that we may consider. Historically, we have financed our growththrough a combination of debt financings and issuances of common stock. In thefuture, there can be no assurances that additional financing alternatives willbe available to us if required, or if available, will be obtained on termsfavorable to us.

 

During the nine monthsended September 30, 2008, net cash provided by operating activities was $19.0million compared to net cash provided by operating activities of $32.9 millionduring the nine months ended September 30, 2007. Cash provided byoperating activities in the nine months ended September 30, 2008 wasattributable to the results of operations adjusted for non-cash items and adecrease in accounts receivable offset partially by an increase

 

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in inventory anddecreases in customer advances and accounts payable. Cash provided by operatingactivities in the nine months ended September 30, 2007 was attributable tothe results of operations adjusted for non-cash items offset partially by anincrease in inventory and a decrease in customer advances.

 

During the nine monthsended September 30, 2008, net cash used by investing activities was $41.0million, compared to net cash used by investing activities of $20.6 millionduring the nine months ended September 30, 2007. Cash used by investingactivities during the nine months ended September 30, 2008 wasattributable to $39.8 million of capital expenditures and $10.6 million used foracquisitions and acquisition-related costs. These uses were offset partially by$9.6 million of proceeds from the sale of short-term investments. Capitalexpenditures during the nine months ended September 30, 2008 relatedprimarily to the expansion of our facility in Ettlingen, Germany, which wascompleted in the third quarter of 2008. Cash used by investing activitiesduring the nine months ended September 30, 2007 was attributable to $19.9million of capital expenditures and $2.9 million for acquisitions.

 

During the nine monthsended September 30, 2008, net cash used by financing activities was $235.9million, compared to net cash used by financing activities of $35.6 millionduring the nine months ended September 30, 2007. Cash used by financingactivities during the nine months ended September 30, 2008 wasattributable to $386.0 million paid to certain shareholders in connection withthe acquisition of Bruker BioSpin and $23.4 million of withholding taxes paidin connection with a dividend declared by Bruker BioSpin prior to theacquisition. These uses were offset, in part, by $172.7 million of netborrowings under various long-term and short-term credit facilities. Cash usedby financing activities during the nine months ended September 30, 2007was attributable to a $42.6 million dividend payment to the shareholders ofBruker BioSpin and $11.7 million in net repayments of short-term and long-termdebt offset partially by $18.8 million in net proceeds from the offering ofcommon stock, net of repurchases.

 

On February 26,2008, we completed our acquisition of Bruker BioSpin for $914.0 million. Theacquisition of Bruker BioSpin was financed with 57,544,872 shares ofunregistered common stock valued at $526.0 million based on the trailing 10 daytrading average closing price of $9.14 per share as of two days prior to thesigning of the transaction agreements, $351.0 million of cash obtained under anew credit facility and the balance with cash on hand. The Credit Agreementwith a syndication of lenders provides for a revolving credit line with amaximum commitment of $230.0 million and a term loan facility of $150.0million. The outstanding principal under the term loan is payable in quarterlyinstallments through December 2012. Borrowings under the Credit Agreementbear interest, at the Company’s option, at either (i) the higher of theprime rate or the federal funds rate plus 0.50%, or (ii) adjusted LIBOR,plus margins ranging from 0.40% to 1.25% and a facility fee ranging from 0.10%to 0.20%. As of September 30, 2008, the weighted-average interest rate ofborrowings outstanding under the Credit Agreement was approximately 3.5%.

 

Borrowings under theCredit Agreement are secured by the pledge to the banks of 100% of the capitalstock of each of the Company’s wholly-owned domestic subsidiaries and 65% ofthe capital stock of certain of the Company’s wholly-owned direct or indirectforeign subsidiaries. The Credit Agreement also requires that we maintaincertain financial ratios related to maximum leverage and minimum interestcoverage, as defined in the Credit Agreement. In addition to the financialratios, the Credit Agreement restricts, among other things, our ability to dothe following: make certain payments; incur additional debt; incur certainliens; make certain investments, including derivative agreements; merge,consolidate, sell or transfer all or substantially all of the Company’s assets;and enter into certain transactions with affiliates.

 

At September 30,2008, we had outstanding debt totaling $214.0 million consisting of $170.6million outstanding under the Credit Agreement, including $146.3 million drawnon a term loan and $24.3 million under revolving loans, $30.5 millionoutstanding under other long-term debt arrangements, $10.6 million outstandingunder other revolving lines of credit and $2.3 million under capital leaseobligations. At December 31, 2007, we had outstanding debt totaling $44.2million consisting of $28.0 million outstanding under other long-term debtarrangements, $13.2 million outstanding under other revolving lines of creditand $3.0 million under capital lease obligations.

 

Amounts outstanding underother long-term debt arrangements at September 30, 2008 include bothcollateralized and uncollateralized arrangements with various financialinstitutions in Germany and Japan. The term of these arrangements also includefixed and variable interest rates ranging from 1.8% to 8.0% at September 30,2008.

 

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Amounts outstanding underother revolving lines of credit are with various financial institutions inGermany, Switzerland, Japan and France and have aggregate maximum borrowingamounts of approximately $76.2 million at September 30, 2008. Withconsideration to outstanding letters of credit drawn under revolving lines ofcredit, we had availability of approximately $51.3 million under otherrevolving lines of credit at September 30, 2008. Our revolving lines ofcredit are generally uncollateralized and bear interest at variable ratesranging from 1.5% to 9.8% at September 30, 2008. Effective February 26,2008, we terminated a $75.0 million line of credit in the United States andreplaced it with the revolving credit available under the Credit Agreement.

 

As of September 30,2008, we have approximately $12.8 million of net operating loss carryforwardsavailable to reduce future U.S. taxable income. These losses will expire in2028. We also have U.S. tax credits of approximately $15.7 million available tooffset future tax liabilities that expire at various dates. These creditsinclude foreign tax credits of $12.6 million expiring in various years through2017 and research and development tax credits of $3.1 million expiringthrough 2025. These operating losses and tax credit carryforwards may besubject to limitations under provisions of the Internal Revenue Code.

 

The following tablesummarizes maturities for our significant financial obligations as of September 30,2008 (in thousands):

 
| ** **                                              | ** ** | ** ** | ** ** | **Less than** | ** ** | **1-3**   | ** ** | **4-5**   | ** ** | **More than** | ** ** |
|---------------------------------------------------------|------------|------------|------------|--------------------|------------|-----------|------------|-----------|------------|--------------------|------------|
| **Contractual Obligations**                        | ** ** | **Total**  | ** ** | **1 year**    | ** ** | **Years** | ** ** | **Years** | ** ** | **5 years**   | ** ** |
| Revolving lines  of credit                              |       | $          | 34,937     |               | $          | 16,637    |       | $         | 18,300     |               | $          | — |   | $ | — |   |
| Long-term debt  arrangements, including current portion |       | 176,728    |       | 26,912             |       | 54,018    |       | 95,798    |       | —             |       |
| Capital lease  obligations                              |       | 2,314      |       | 727                |       | 828       |       | 543       |       | 216                |       |
| Uncertain tax  contingencies                            |       | 19,981     |       | —             |       | 19,981    |       | —    |       | —             |       |
| Total  contractual obligations                          |       | $          | 233,960    |               | $          | 44,276    |       | $         | 93,127     |               | $          | 96,341 |   | $ | 216 |   |

 

Uncertain taxcontingencies are positions taken or expected to be taken on an income taxreturn that may result in additional payments to tax authorities. The amount inthe preceding table includes interest and penalties accrued related to thesepositions as of September 30, 2008. The total amount of uncertain taxcontingencies is included in the “1-3 Years” column as we are not able toreasonably estimate the timing of potential future payments. If a tax authorityagrees with the tax position taken or expected to be taken or the applicablestatute of limitations expires, then additional payments will not be necessary.

 

**NEWACCOUNTING PRONOUNCEMENTS**

 

In December 2007,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 141(R), *BusinessCombinations* (“SFAS No. 141(R)”). This statement willsignificantly change the accounting for business combinations. Under SFAS No. 141(R),an acquiring entity will be required to recognize all of the assets acquiredand liabilities assumed in a transaction at the acquisition date fair valuewith certain limited exceptions. In addition, SFAS No. 141(R) willchange the accounting treatment for acquisition costs, in-process research anddevelopment, restructuring costs associated with business combinations andchanges in deferred tax asset valuation allowances and income tax uncertaintiesafter the acquisition date. SFAS No. 141(R) also includes asignificant number of new disclosure requirements. Early adoption of SFAS No. 141(R) isprohibited and we will be required to apply SFAS No. 141(R) toacquisitions that occur on or after January 1, 2009.

 

In December 2007,the FASB issued SFAS No. 160,*Noncontrolling Interests in Consolidated Financial Statements — An Amendment ofARB No. 51* (“SFAS No. 160”). This statement establishesnew accounting and reporting standards for the minority interest in asubsidiary and the deconsolidation of a subsidiary. SFAS No. 160 iseffective as of the beginning of fiscal 2009 and early adoption is prohibited.We have not yet assessed the effect, if any, that adoption of SFAS No. 160will have on our results of operations and financial position.

 

In March 2008, theFASB issued SFAS No. 161,*Disclosuresabout Derivative Instruments and Hedging*

 

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*Activities— an amendment of FASB Statement No. 133* (“SFAS No. 161”).SFAS No. 161 requires enhanced disclosures about an entity’s derivativeand hedging activities and, thereby, improves the transparency of financialreporting. SFAS No. 161 is effective for fiscal years beginning on orafter November 15, 2008. We are currently evaluating the impact that theadoption of SFAS No. 161 will have on our financial position, results ofoperations and cash flows.

 
| **ITEM 3.** | **QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK** |
|-------------|-----------------------------------------------------------------|

 

We are potentiallyexposed to market risks associated with changes in foreign exchange rates andinterest rates. We selectively use financial instruments to reduce these risks.All transactions related to risk management techniques are authorized andexecuted pursuant to our policies and procedures. Analytical techniques used tomanage and monitor foreign exchange and interest rate risk include marketvaluations and sensitivity analysis.

 

***Impact of Foreign Currencies***

 

We generate a substantialportion of our revenues in international markets, principally Europe and Japan,which subjects our operations to the exposure of exchange rate fluctuations.The impact of currency exchange rate movement can be positive or negative inany period. Our costs related to sales in foreign currencies are largelydenominated in the same respective currencies, limiting our transaction riskexposure. However, for sales not denominated in U.S. Dollars, if there is anincrease in the rate at which a foreign currency is exchanged for U.S. Dollars,it will require more of the foreign currency to equal a specified amount ofU.S. Dollars than before the rate increase. In such cases, if we price ourproducts in the foreign currency, we will receive less in U.S. Dollars than wedid before the rate increase went into effect. If we price our products in U.S.Dollars and competitors price their products in local currency, an increase inthe relative strength of the U.S. Dollar could result in our prices not beingcompetitive in a market where business is transacted in the local currency.

 

Our foreign exchangelosses, net, were $5.9 million and $2.4 million for the nine months ended September 30,2008 and 2007, respectively. We will continue to evaluate our currency risksand may utilize foreign exchange contracts more frequently in order to mitigateour foreign currency exposures. From time to time, we have entered into foreigncurrency contracts in order to minimize the volatility that fluctuations inexchange rates have on our cash flows related to purchases and salesdenominated in foreign currencies. At September 30, 2008, we had oneoutstanding forward contract with a notional amount of approximately $0.2million that will mature in the fourth quarter of 2008.

 

***Impact of Interest Rates***

 

We regularly investexcess cash in short-term investments that are subject to changes in short-terminterest rates. We believe that the market risk arising from holding thesefinancial instruments is minimal.

 

Our exposure related toadverse movements in interest rates is derived primarily from outstandingfloating rate debt instruments that are indexed to short-term market rates. Ourobjective in managing our exposure to interest rates is to decrease thevolatility that changes in interest rates might have on our earnings and cashflows. To achieve this objective we entered into interest rate swaps and crosscurrency rate swaps in order to minimize the volatility that changes ininterest rates might have on earnings and cash flows.

 

In April 2008, weentered into an interest rate swap arrangement to pay a fixed rate ofapproximately 3.8% and receive a variable rate based on three month LIBORthrough December 31, 2012. The initial notional amount of this interestrate swap is $90.0 million and amortizes in proportion to the term debtcomponent of the Credit Agreement. At September 30, 2008, the outstandingnotional amount of this swap was $87.8 million. We have determined that thisswap is an effective hedge of the variability of cash flows of the interestpayments under SFAS No. 133,*Accountingfor Derivative Instruments and Hedging Activities*  (“SFAS No. 133”).

 

In addition, in 2002 weentered into a cross currency interest rate swap arrangement under which wereceive semiannual interest payments in Euros based on a variable interest rateequal to the nine-month EURIBOR rate in exchange for semiannual payments inSwiss francs at a fixed rate of 4.97% through December 2011. The initialnotional amount of this cross currency interest rate swap was €5.0 million. In1999, we entered into

 

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an interest rate swaparrangement to pay a 4.60% fixed rate of interest and receive a variable rateof interest based on the Securities Industry and Financial Markets MunicipalSwap Index through December 2013. The initial notional amount of this interestrate swap arrangement was $2.2 million and amortized in proportion to therelated debt agreement. We determined that these swap arrangements were noteffective in offsetting the change in interest cash flows being hedged asdefined by SFAS No. 133 and accordingly, changes in the fair value ofthese swap arrangements were being recorded in the unaudited condensedconsolidated statements of operations as a component of interest and otherincome (expense), net. In the third quarter of 2008, we terminated the €5.0million cross currency interest rate swap arrangement because of itsineffectiveness in offsetting the change in cash flows being hedged. We alsoterminated the $2.2 million interest rate swap in the third quarter of 2008because the related debt was repaid.

 

A 10% increase ordecrease in the average cost of our variable rate debt would not result in amaterial change in pre-tax interest expense.

 

***Inflation***

 

We do not believeinflation had a material impact on our business or operating results during anyof the periods presented.

 
| **ITEM 4.** | **CONTROLS  AND PROCEDURES** |
|-------------|------------------------------|

 

We have establisheddisclosure controls and procedures that are designed to ensure that materialinformation relating to us, including our consolidated subsidiaries, is madeknown to our Chief Executive Officer (principal executive officer) and ChiefFinancial Officer (principal financial officer) by others within ourorganization. Under the supervision and with the participation of ourmanagement, including our Chief Executive Officer and Chief Financial Officer,we conducted an evaluation of the effectiveness of our disclosure controls andprocedures as of September 30, 2008. Based on this evaluation, our ChiefExecutive Officer and Chief Financial Officer concluded that our disclosurecontrols and procedures were effective, as of September 30, 2008, toensure that the information required to be disclosed by us in the reports thatwe file or submit under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported within the time periods specified in the SEC’srules and forms.

 

There were no changes inour internal control over financial reporting that occurred during the quarterended September 30, 2008 that materially affected, or are reasonablylikely to affect, our internal control over financial reporting.

 

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| **PART II** | **OTHER  INFORMATION** |
|------------------|------------------------|

 
| **ITEM 1.** | **LEGAL  PROCEEDINGS** |
|-------------|------------------------|

 

Except as set forthbelow, there have been no material changes to the legal proceedings disclosedin Part I, “Item 3. Legal Proceedings” in our Annual Report on Form 10-Kfor the year ended December 31, 2007 and our Quarterly Reports on Form 10-Qfor the quarters ended March 31, 2008 and June 30, 2008.

 

Ourindirect subsidiary, Bruker Daltonik GmbH, is party to certain agreements withAgilent Technologies, Inc., as the successor to Hewlett-PackardCompany.  A dispute has arisen between the parties concerning Agilent’sability to terminate such agreements and the timing of any suchtermination.  Pursuant to the dispute resolution mechanism set forth inthe agreements, the parties are presently engaged in discussions inan attempt to resolve their dispute.  If those discussions are unableto resolve the dispute, the parties may proceed to formal mediation ascontemplated by the agreements. Independent of this dispute, Agilent notifiedthe Company on September 24, 2008 that it would not extend the underlyingagreements beyond their stated termination dates.

 

As previously disclosedin our Annual Report on Form 10-K for the year ended December 31,2007 and in our Quarterly Report on Form 10-Q for the three months ended June 30,2008, on October 10, 2007, Brian Lamy, a former employee of Bruker BioSpinCorporation, filed a complaint with the United States Department of Labor’sOccupational Health and Safety Administration (“OSHA”) alleging discriminatoryemployment practices in violation of Section 806 of the Sarbanes-Oxley Actarising from Bruker BioSpin Corporation’s termination of his employment in July 2007.At the time of the complaint, Bruker BioSpin Corporation was an affiliate ofthe Company under common control of the Company.  As a result of the Company’s acquisition ofBruker BioSpin, Bruker BioSpin Corporation is now a wholly-owned subsidiary ofthe Company.

 

Mr. Lamy alsocontacted the Securities and Exchange Commission regarding his complaint. TheSEC contacted counsel for the Company in February 2008 regarding thismatter. Counsel for the Company at that time provided the SEC various materialsrelating to the matter, and the Company intends to cooperate fully with anyadditional requests that may be made by the SEC for information or documents.

 

On July 17, 2008, Mr. Lamywithdrew his action from OSHA and filed in federal court in the District ofMassachusetts a substantially similar complaint against Bruker BioSpinCorporation, Bruker Corporation and Dirk Laukien, alleging termination inviolation of the Sarbanes-Oxley Act. On September 22, 2008, Mr. Lamyvoluntarily dismissed his first federal court action, and subsequently filed inthe same federal court a substantially similar complaint against only BrukerBioSpin Corporation and Bruker Corporation, entitled *Brian Lamyv. Bruker BioSpin Corporation and Bruker Corporation f/k/a Bruker BioSciencesCorporation.*

 

The Audit Committee ofthe Company has conducted an internal review with regard to Mr. Lamy’sclaims and has found no evidence of any improper activity.  The Company believes the allegations of Mr. Lamy’scomplaint to be without merit and intends to defend this matter vigorously.

 
| **ITEM 1A.** | **RISK  FACTORS** |
|--------------|-------------------|

 

In addition to the otherinformation set forth in this report, you should carefully consider the factorsdiscussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-Kfor the year ended December 31, 2007 and in Part II, “Item 1A. RiskFactors” in our Quarterly Report on Form 10-Q for the three months ended March 31,2008, which could materially affect our business, financial condition or futureresults. The risks described in this report and in our Annual Report on Form 10-Kand Quarterly Reports on Form 10-Q are not the only risks facing ourCompany. Additional risks and uncertainties not currently known to us or thatwe currently deem to be immaterial also may materially adversely affect ourbusiness, financial condition and/or operating results.

 

Except as set forthbelow, there have been no material changes to the risk factors previouslydisclosed in our Annual Report on Form 10-K for the fiscal year ended December 31,2007 and our Quarterly Report on Form 10-Q for the quarter ended March 31,2008.

 

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***Adverse conditions in the globaleconomy and disruption of financial markets could negatively impact ourcustomers and our results of operations and cash flow.***

 

An economic downturn inthe businesses or geographic areas in which we sell our products, or reductionsin the level of government funding for scientific research, could reduce demandfor these products and result in a decrease in sales volume that could have anegative impact on our results of operations and cash flow. Additionally,volatility and disruption of global financial markets could limit our customers’ability to obtain adequate financing to maintain operations and proceed withplanned or new capital spending initiatives, leading to a reduction in salesvolume that could have a negative impact on our results of operations and cashflow.

 
| **ITEM 2.** | **UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS** |
|-------------|------------------------------------------------------------------|

 

As more fully describedin the first paragraph of Note 3. Other Acquisitions to our unaudited condensedconsolidated financial statements, which disclosure is incorporated byreference herein, on August 14, 2008 we issued 59,342 restrictedunregistered shares of our common stock to certain sellers in connection withthe acquisition of S.I.S. Surface Imaging Systems GmbH.

 

The following table setsforth all purchases made by or on behalf of the Company or any “affiliatedpurchaser,” as defined in Rule 10b-18(a)(3) under the Exchange Act,of shares of our common stock during each month in the third quarter of 2008.

 
| **Period**                                     | ** ** | **Total Number of  Shares Purchased** | ** ** | **Average Price  Paid per Share** | ** ** | **Total Number of  Shares Purchased  as Part of Publicly  Announced Plans  or Programs** | ** ** | **Maximum  Number of Shares  that May Yet Be  Purchased Under  the Plans or  Programs** | ** ** |
|------------------------------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------|------------|
| July 1—July 31,  2008           |       | —                                               |       | $                                                | —     |                                                                                                                             | —     |                                                                                                                            | —     |   |
| August 1—August 31,  2008       |       | 20,000                                               |       | 13.65                                            |       | —                                                                                                                           |       | —                                                                                                                          |       |
| September 1—September 30,  2008 |       | —                                               |       | —                                           |       | —                                                                                                                           |       | —                                                                                                                          |       |
| Total                                          |       | 20,000                                               |       | $                                                | 13.65      |                                                                                                                             | —     |                                                                                                                            | —     |   |

 

All share repurchaseswere open-market purchases made by the Company’s Chief Executive Officer, wereeffected in accordance with the safe harbor provisions of Rule 10b-18 ofthe Exchange Act and were previously disclosed on Forms 4 filed with the U.S.Securities and Exchange Commission.

 
| **ITEM 3.** | **DEFAULTS  UPON SENIOR SECURITIES** |
|-------------|--------------------------------------|

 

None.

 
| **ITEM 4.** | **SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS** |
|-------------|----------------------------------------------------------|

 

None.

 
| **ITEM 5.** | **OTHER  INFORMATION** |
|-------------|------------------------|

 

None.

 
| **ITEM 6.** | **EXHIBITS** |
|-------------|--------------|

 

 
| **Exhibit  No.** | ** ** | **Description**                                                                                                                                                                                |
|------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1             |       | Certification by Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 (1)                                                                                  |
| 31.2             |       | Certification by Chief  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 (1)                                                                                  |
| 32.1             |       | Certification by Chief  Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 (2) |

 

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| (1) |   | Filed herewith     |
|-----|--------|--------------------|
| (2) |   | Furnished herewith |

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|                          |   | BRUKER CORPORATION |
|-------------------------------|--------|--------------------|
|                          |   |               |
| Date: November 10,  2008 |   | By:                | /s/ FRANK H. LAUKIEN,  PH.D. |
|                          |   |               | Frank H. Laukien, Ph.D.President, Chief Executive Officer and Chairman  (Principal Executive Officer) |

 
| Date: November 10,  2008 |   | By:    | /s/ WILLIAM J. KNIGHT                                                                    |
|-------------------------------|--------|--------|------------------------------------------------------------------------------------------|
|                          |   |   | William J. Knight  Chief Financial Officer  (Principal Financial and Accounting Officer) |

 

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